JPMorgan Running From PulteGroup After CEO Loss

On April 4, PulteGroup, Inc. (NYSE: PHM) announced the resignation of its CEO, Richard Dugas, effective May 2017.

JPMorgan’s Michael Rehaut downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $21.50 to $18.00, following the announcement.

Departure of CEO

“We believe this announcement will lead to a period of uncertainty at the company at least over the next 2-3 quarters as well as potentially result in a possible shift away from its current strategy,” Rehaut mentioned.

Related Link: PulteGroup Founder On Recently-Fired CEO: Extreme Disappointment, Inadequate Performance

PulteGroup stated the CEO’s decision to retire was in part due to the actions of founder Bill Pulte, his grandson, Jim Grosfeld, and a former CEO and current director of the company, who “demanded an immediate CEO change and a different direction for the company.”

Public Battle Likely

Both the board and Mr. Dugas wished to avoid a contested public battle associated with the company’s future direction, which Rehaut pointed out could possible by protracted and distracting for management.

However, “Mr. Pulte released a letter yesterday citing additional disappointment in the timeframe with which Mr. Dugas would retire, advocating for a more accelerated change in leadership, thereby likely still resulting in the same public battle,” Rehaut added.

Given the likelihood of a public battle, the analyst believes that the subsequent executive search and high level of uncertainty regarding PulteGroup’s strategic direction could persist for the next two to three quarters.