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Will D.R. Horton be Able to Sustain Solid Growth Through '18?
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Shares of D.R. Horton Inc. (DHI - Free Report) have returned 31.3% in the past year, outperforming the industry’s 19.8% rally. Estimates have moved north in the last 60 days for the current as well as for the next year by 1.1% and 5.8%, respectively. This indicates that analysts are optimistic about the company’s future earnings growth.
D.R. Horton delivered stellar performance yet again in the first quarter of fiscal 2018. Earnings and revenues surpassed the Zacks Consensus Estimate, courtesy of a solid housing market. Homebuilding revenues increased 14% year over year on a 14% rise in homes closings. New orders rose 16% in units and 17% in value, improving across all operating regions. With accretive acquisitions, robust backlog and a well-stocked inventory of land, lots and homes in place, D.R. Horton is expected to maintain its performance in the rest of fiscal 2018.
Growth Drivers
Acquisitions have been an important growth driver for the company. The $558-million buyout of 75% shares of Forestar Group will help D.R. Horton to expand operations in Texas, which is witnessing positive housing momentum. It is also expected to contribute around $1 billion in annual revenues over the next five years.
D.R. Horton’s inventory of land, plots and homes provide it a strong competitive position to meet the demand in future quarters. This is expected to boost sales and home closings.The company invested $3.5 billion in lots, land and development in fiscal 2017 compared with $2.7 billion a year ago. The company plans to boost investments to replenish its land and lot supply in 2018 to support revenue growth.
Moreover, the company’s cost-reduction measures reduced SG&A expenses over the years. It strategically manages the pricing, incentives and sales pace across its markets, which will optimize the returns on inventory investments. For fiscal 2017, the company’s SG&A expenses, as a percentage of homebuilding revenues, declined 40 bps to 8.9%. The company’s total return on inventory improved in the past few years. With 259,000 lots in inventory at the end of first quarter of fiscal 2018 (49% lots were owned and 51% were controlled through option contracts), D. R. Horton is well poised for fiscal 2018.
Overall fundamentals of the housing market were strong in 2017 and are expected to improve in 2018. Steady job and wage growth, a recovering economy, moderating home price gains, rising rentals, rapidly increasing household formation and a limited supply of inventory — all point to consistent strong demand in 2018.
Upbeat Fiscal 2018 Outlook
Revenues are expected in the range of $15.5-$16.3 billion for fiscal 2018. Homes closings are expected to fall between 50,500 and 52,500 units. Homebuilding SG&A expense, as a percentage of homebuilding revenues, are expected to be around 8.7%. D.R. Horton updated its home sales gross margin forecast to 20-21%, versus the previous projection of 20%. Consolidated pre-tax profit margin expected at approximately 11.8-12%, against the earlier expectation of 11.5-11.7%. Cash flow from operations is expected at around $700 million (excluding Forestar), up from the previous projection of $500 million.
Per the Zacks Consensus Estimate, the homebuilder’s earnings for fiscal 2018 are expected to increase a solid 30.7% and sales are likely to grow a healthy 14.8% year over year.
It is important to note that rising material and labor costs as well as competitive pricing pressure are major causes of concern. Again, high mortgage rates may dilute the demand for new homes. However, such hurdles have not been able to affect the industry significantly till now.
Zacks Rank & Stocks to Consider
D.R. Horton carries a Zacks Rank #3 (Hold).
You can consider a few better-ranked stocks in the same space.
KB Home (KBH - Free Report) , a Zack Rank #2 stock, is expected to witness 45.4% growth in earnings this year.
Lyon William Homes carries Zacks Rank #2. Its earnings are expected to grow 30% this year.
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Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Image: Bigstock
Will D.R. Horton be Able to Sustain Solid Growth Through '18?
Shares of D.R. Horton Inc. (DHI - Free Report) have returned 31.3% in the past year, outperforming the industry’s 19.8% rally. Estimates have moved north in the last 60 days for the current as well as for the next year by 1.1% and 5.8%, respectively. This indicates that analysts are optimistic about the company’s future earnings growth.
D.R. Horton delivered stellar performance yet again in the first quarter of fiscal 2018. Earnings and revenues surpassed the Zacks Consensus Estimate, courtesy of a solid housing market. Homebuilding revenues increased 14% year over year on a 14% rise in homes closings. New orders rose 16% in units and 17% in value, improving across all operating regions. With accretive acquisitions, robust backlog and a well-stocked inventory of land, lots and homes in place, D.R. Horton is expected to maintain its performance in the rest of fiscal 2018.
Growth Drivers
Acquisitions have been an important growth driver for the company. The $558-million buyout of 75% shares of Forestar Group will help D.R. Horton to expand operations in Texas, which is witnessing positive housing momentum. It is also expected to contribute around $1 billion in annual revenues over the next five years.
D.R. Horton’s inventory of land, plots and homes provide it a strong competitive position to meet the demand in future quarters. This is expected to boost sales and home closings.The company invested $3.5 billion in lots, land and development in fiscal 2017 compared with $2.7 billion a year ago. The company plans to boost investments to replenish its land and lot supply in 2018 to support revenue growth.
Moreover, the company’s cost-reduction measures reduced SG&A expenses over the years. It strategically manages the pricing, incentives and sales pace across its markets, which will optimize the returns on inventory investments. For fiscal 2017, the company’s SG&A expenses, as a percentage of homebuilding revenues, declined 40 bps to 8.9%. The company’s total return on inventory improved in the past few years. With 259,000 lots in inventory at the end of first quarter of fiscal 2018 (49% lots were owned and 51% were controlled through option contracts), D. R. Horton is well poised for fiscal 2018.
Overall fundamentals of the housing market were strong in 2017 and are expected to improve in 2018. Steady job and wage growth, a recovering economy, moderating home price gains, rising rentals, rapidly increasing household formation and a limited supply of inventory — all point to consistent strong demand in 2018.
Upbeat Fiscal 2018 Outlook
Revenues are expected in the range of $15.5-$16.3 billion for fiscal 2018. Homes closings are expected to fall between 50,500 and 52,500 units. Homebuilding SG&A expense, as a percentage of homebuilding revenues, are expected to be around 8.7%. D.R. Horton updated its home sales gross margin forecast to 20-21%, versus the previous projection of 20%. Consolidated pre-tax profit margin expected at approximately 11.8-12%, against the earlier expectation of 11.5-11.7%. Cash flow from operations is expected at around $700 million (excluding Forestar), up from the previous projection of $500 million.
Per the Zacks Consensus Estimate, the homebuilder’s earnings for fiscal 2018 are expected to increase a solid 30.7% and sales are likely to grow a healthy 14.8% year over year.
It is important to note that rising material and labor costs as well as competitive pricing pressure are major causes of concern. Again, high mortgage rates may dilute the demand for new homes. However, such hurdles have not been able to affect the industry significantly till now.
Zacks Rank & Stocks to Consider
D.R. Horton carries a Zacks Rank #3 (Hold).
You can consider a few better-ranked stocks in the same space.
Meritage Corporation (MTH - Free Report) holds a Zack Rank #2 (Buy). Its earnings are expected to grow 30.4% in 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
KB Home (KBH - Free Report) , a Zack Rank #2 stock, is expected to witness 45.4% growth in earnings this year.
Lyon William Homes carries Zacks Rank #2. Its earnings are expected to grow 30% this year.
Can Hackers Put Money INTO Your Portfolio?
Earlier this year, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Download the new report now>>