D.R. Horton DHI, one of the biggest and well-known homebuilders in the nation, came up with mixed fiscal third-quarter 2016 results on July 21 before the bell. Though the housing company’s earnings were in line with the Zacks Consensus Estimate, its revenues missed the same.
Still, shares fell just 0.4% in the key trading session, probably to reflect the company’s healthy order trends and some upbeat housing sector data.
Let’s take a look inside the headline numbers:
Behind the Headline Numbers
D.R. Horton’s adjusted earnings of $0.66 per share in the third quarter of fiscal 2016 matched the Zacks Consensus Estimate and grew 10% year over year driven by improved margins. Total revenue (homebuilding and financial services) of $3.15 billion missed the Zacks Consensus Estimate of $3.29 billion. Total revenue rose 9.5% year over year.
Home closings increased 9% while net sales orders rose 13% due to growing demand in the sector. Orders increased across all operating regions. The value of net orders grew 14%.
Gross margin on home sales rose 40 basis points (bps) year over year to 20.3%. Cost containment, lower incentives and higher prices led to margin improvement, as per management.
D.R. Horton continues to provide a positive outlook with expectations of revenues and pre-tax profits to increase in double digits, annually. A robust backlog and solid inventory position the company to deliver a strong show in the fourth quarter, as per management (read: Can Surging Housing ETFs Withstand Fed Hike Worry?).
Should You Still Buy D.R. Horton & Housing ETFs?
The subtle bearishness over such an important homebuilding stock may cause a slack in the broad housing ETFs. But investors should note that the U.S. housing sector is presently in a good shape. The recently released U.S. housing starts grew more than expected for the month of June as construction activity gathered momentum (read: Play the Housing Boom with 3 Sector ETFs).
Also, new home sales grew at the ‘best pace since early 2007’ in June. The scenario is the same for existing home sales which expanded at the highest rate in ‘nearly a decade in June’, thanks to the prevailing low rate environment and a rebounding economy. Investors should note that the industry in which DHI operates in, is presently in the top 23% allocation of the Zacks Industry Rank (read: Top ETF Stories of the First Half of 2016).
Agreed, still-subdued inventory levels and the resultant uptick in home prices have restrained the sector from seeing activity up to its potential, still it is shaping up quite positively.
So, investors can use the dip in DHI shares as an entry point to housing exchange-traded products like SPDR S&P Homebuilders ETF XHB, iShares U.S. Home Construction ETF (ITB) and UBS ETRACS ISE Exclusively Homebuilders ETN (HOMX).
DHI takes the second spot in ITB with a 12.82% weight and holds the first spot in the underlying index of HOMX with a weight of 10.24% and the second spot (4.7% weight) in XHB. These funds are excellent choices for investors, who believe that the housing rebound has just started and has room for further run. Plus, a basket approach will safeguard investors from one stock’s weakness with another’s strength.
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Is D.R. Horton's Soft Q3 an Entry Point to Housing ETFs?
D.R. Horton DHI, one of the biggest and well-known homebuilders in the nation, came up with mixed fiscal third-quarter 2016 results on July 21 before the bell. Though the housing company’s earnings were in line with the Zacks Consensus Estimate, its revenues missed the same.
Still, shares fell just 0.4% in the key trading session, probably to reflect the company’s healthy order trends and some upbeat housing sector data.
Let’s take a look inside the headline numbers:
Behind the Headline Numbers
D.R. Horton’s adjusted earnings of $0.66 per share in the third quarter of fiscal 2016 matched the Zacks Consensus Estimate and grew 10% year over year driven by improved margins. Total revenue (homebuilding and financial services) of $3.15 billion missed the Zacks Consensus Estimate of $3.29 billion. Total revenue rose 9.5% year over year.
Home closings increased 9% while net sales orders rose 13% due to growing demand in the sector. Orders increased across all operating regions. The value of net orders grew 14%.
Gross margin on home sales rose 40 basis points (bps) year over year to 20.3%. Cost containment, lower incentives and higher prices led to margin improvement, as per management.
D.R. Horton continues to provide a positive outlook with expectations of revenues and pre-tax profits to increase in double digits, annually. A robust backlog and solid inventory position the company to deliver a strong show in the fourth quarter, as per management (read: Can Surging Housing ETFs Withstand Fed Hike Worry?).
Should You Still Buy D.R. Horton & Housing ETFs?
The subtle bearishness over such an important homebuilding stock may cause a slack in the broad housing ETFs. But investors should note that the U.S. housing sector is presently in a good shape. The recently released U.S. housing starts grew more than expected for the month of June as construction activity gathered momentum (read: Play the Housing Boom with 3 Sector ETFs).
Also, new home sales grew at the ‘best pace since early 2007’ in June. The scenario is the same for existing home sales which expanded at the highest rate in ‘nearly a decade in June’, thanks to the prevailing low rate environment and a rebounding economy. Investors should note that the industry in which DHI operates in, is presently in the top 23% allocation of the Zacks Industry Rank (read: Top ETF Stories of the First Half of 2016).
Agreed, still-subdued inventory levels and the resultant uptick in home prices have restrained the sector from seeing activity up to its potential, still it is shaping up quite positively.
So, investors can use the dip in DHI shares as an entry point to housing exchange-traded products like SPDR S&P Homebuilders ETF XHB, iShares U.S. Home Construction ETF (ITB) and UBS ETRACS ISE Exclusively Homebuilders ETN (HOMX).
DHI takes the second spot in ITB with a 12.82% weight and holds the first spot in the underlying index of HOMX with a weight of 10.24% and the second spot (4.7% weight) in XHB. These funds are excellent choices for investors, who believe that the housing rebound has just started and has room for further run. Plus, a basket approach will safeguard investors from one stock’s weakness with another’s strength.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>