The case for & against
Bull & Bear analysis
Bullish
D.R. Horton, Inc. (NYSE: DHI) is a leading homebuilder in the United States, renowned for its diverse portfolio catering predominantly to first-time homebuyers. Operating across various geographic markets, D.R. Horton has established itself as a dominant player within the residential construction sector, adeptly navigating market fluctuations while maintaining a commitment to affordability. The company is part of the broader housing market, which is characterized by ongoing challenges related to rising interest rates and shifting consumer sentiment.
Bull says
- ↑Q3 closings at 23,983 homes with 13.3% margin and EPS of $3.20
- ↑Paid $127M dividends and repurchased $616M of stock, yielding 0.53%
- ↑65% of mortgage closings for first-time buyers; gross margin rose to 20.7%
- ↑Inventory cut to 38,000 homes; median build cycle quickened by three weeks
- ↑Shares trade at $142.81 vs. $166.92 consensus target, indicating upside
- ↑High earnings yield and solid balance sheet quality underpin valuation
Bear says
- ↓Revenue expected down >9% YoY in FY26; Q3 held flat at $9.2B
- ↓Cancellation rate climbed to 20% from 17%, pressuring sales
- ↓EPS slid to $3.20 from $3.36 year-over-year
- ↓Demand highly sensitive to rates; consumer confidence remains weak
- ↓Negative profitability trends and elevated short interest reflect skepticism
Investment themes with DHI
Buybacks↓ -0.29%
Companies repurchasing their own shares
C · JCI · WFC
Quality↓ -0.56%
Companies with strong fundamentals and stability
NVDA · AAPL · MSFT
Earnings Call · Q4 2023 · Mgmt. Guidance
Updated 12-04-2024neutral
Transcript signals
Bull points
- As we did comment earlier, our pipeline of multifamily deals is growing, and we expect higher deliveries on multifamily. So I do expect our investments on the multifamily side of rental to show an increase in fiscal 2024.
- Our gross profit margin on home sales revenues in the fourth quarter was 25.1%, up 180 basis points sequentially from the June quarter.
- Forestar, our majority-owned residential lot development company, reported revenues of $550 million for the fourth quarter on 4,986 lots sold with pre-tax income of $95 million. For the full year, Forestar delivered 14,040 lines, generating $1.4 billion of revenues and $222 million of pre-tax income with a pre-tax profit margin of 15.4%.
Bear points
- there are a lot of moving pieces and a lot of that's going to be dependent on what happens in the spring. But if we do find ourselves in a market where we have more downward house price pressure, then we'll also be looking to adjust our cost structure at the same time.
- Due to recent increases in volatility in mortgage rates, our incentive costs have increased on recent sales, and we expect our homebuilding gross margins to be lower in the first quarter compared to the fourth quarter.
- we've also seen significant inflation in development costs and all that includes in that, whether it's the infrastructure costs themselves along with costs from government permits and regulations and requirements there as well as lengthening the time of development. The development time lines have lengthened dramatically, which then adds to, obviously, the costs associated with it.
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