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Here's Why Investors Should Hold D.R. Horton (DHI) Stock Now
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D.R. Horton, Inc. (DHI - Free Report) remains well poised to gain from solid backlog level, along with continued strategic focus to consolidate market share, while generating strong cash flow, pre-tax income and returns. However, rising land and labor costs, as well materials expenses raise concerns.
Recently, this homebuilder ended fiscal 2018 on an impressive note. Consolidated pre-tax income increased 29% to $2.1 billion on $16.1 billion revenues (up 14%) in fiscal 2018. It closed 51,857 homes in the fiscal year, up 13% from fiscal 2017. Pre-tax margin improved 140 basis points (bps) to 12.8% and its homebuilding return on inventory was up 360 bps to 20.2%. Additionally, homebuilding cash flow from operations was $1 billion, marking the fourth consecutive year of generating positive operating cash flow wherein annual revenues doubled. Let’s delve deeper:
Driving Factors
Shares of D.R. Horton have outperformed its industry in the past year, given strong fundamentals and operating efficiencies. Indeed, higher prices of both new and existing homes across most of the markets served by the company, coupled with rising interest rates impacted affordability and resulted in some moderation in the demand for homes. Nonetheless, it continues to experience strong demand, courtesy of solid economic fundamentals and financing availability.
Moreover, D.R. Horton’s strategic shift toward more entry-level affordable homes has been paying off, with the segment experiencing strong demand and limited supply. Notably, first-time homebuyers represented 49% of the closings in the fourth quarter of fiscal 2018, up from 44% in the same quarter last year.
Its Express and Freedom brands, which sell homes at lower prices, accounted for 37% and 57% of homes sold, respectively, in the fourth quarter.
Meanwhile, the homebuilder’s consistent efforts to reduce both construction and selling, general and administrative (SG&A) expenses have been boosting its profitability. In fiscal 2018, SG&A expenses improved 30 bps year over year to 8.6%. The metric also improved 40 bps and 20 bps in fiscal 2017 and fiscal 2016, respectively. These efforts helped the company to increase earnings by 41% to $3.81 per share in fiscal 2018.
With an impressive backlog ($4 billion as of Sep 30, 2018), along with a well-stocked supply of land, lots and homes, this Zacks Rank #3 (hold) company is well positioned for fiscal 2019 as well.
Headwinds
Undeniably, there have been indications that the thriving housing market is being hammered now and then this year. Factors like increasing construction costs, dearth of skilled labor, rising prices of homes and higher mortgage rates continue to make things difficult for D.R. Horton, Lennar (LEN - Free Report) , PulteGroup (PHM - Free Report) , KB Home (KBH - Free Report) and others. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ongoing housing market headwinds have impacted the homebuilding industry’s performance as a whole (down 30.6% in the past year). Although D.R. Horton's shares have outperformed its industry, it declined 28.8% in the period. Earnings estimates for fiscal 2019 have been trending downward, decreasing 2.2% over the past 30 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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Here's Why Investors Should Hold D.R. Horton (DHI) Stock Now
D.R. Horton, Inc. (DHI - Free Report) remains well poised to gain from solid backlog level, along with continued strategic focus to consolidate market share, while generating strong cash flow, pre-tax income and returns. However, rising land and labor costs, as well materials expenses raise concerns.
Recently, this homebuilder ended fiscal 2018 on an impressive note. Consolidated pre-tax income increased 29% to $2.1 billion on $16.1 billion revenues (up 14%) in fiscal 2018. It closed 51,857 homes in the fiscal year, up 13% from fiscal 2017. Pre-tax margin improved 140 basis points (bps) to 12.8% and its homebuilding return on inventory was up 360 bps to 20.2%. Additionally, homebuilding cash flow from operations was $1 billion, marking the fourth consecutive year of generating positive operating cash flow wherein annual revenues doubled. Let’s delve deeper:
Driving Factors
Shares of D.R. Horton have outperformed its industry in the past year, given strong fundamentals and operating efficiencies. Indeed, higher prices of both new and existing homes across most of the markets served by the company, coupled with rising interest rates impacted affordability and resulted in some moderation in the demand for homes. Nonetheless, it continues to experience strong demand, courtesy of solid economic fundamentals and financing availability.
Moreover, D.R. Horton’s strategic shift toward more entry-level affordable homes has been paying off, with the segment experiencing strong demand and limited supply. Notably, first-time homebuyers represented 49% of the closings in the fourth quarter of fiscal 2018, up from 44% in the same quarter last year.
Its Express and Freedom brands, which sell homes at lower prices, accounted for 37% and 57% of homes sold, respectively, in the fourth quarter.
Meanwhile, the homebuilder’s consistent efforts to reduce both construction and selling, general and administrative (SG&A) expenses have been boosting its profitability. In fiscal 2018, SG&A expenses improved 30 bps year over year to 8.6%. The metric also improved 40 bps and 20 bps in fiscal 2017 and fiscal 2016, respectively. These efforts helped the company to increase earnings by 41% to $3.81 per share in fiscal 2018.
With an impressive backlog ($4 billion as of Sep 30, 2018), along with a well-stocked supply of land, lots and homes, this Zacks Rank #3 (hold) company is well positioned for fiscal 2019 as well.
Headwinds
Undeniably, there have been indications that the thriving housing market is being hammered now and then this year. Factors like increasing construction costs, dearth of skilled labor, rising prices of homes and higher mortgage rates continue to make things difficult for D.R. Horton, Lennar (LEN - Free Report) , PulteGroup (PHM - Free Report) , KB Home (KBH - Free Report) and others. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ongoing housing market headwinds have impacted the homebuilding industry’s performance as a whole (down 30.6% in the past year). Although D.R. Horton's shares have outperformed its industry, it declined 28.8% in the period. Earnings estimates for fiscal 2019 have been trending downward, decreasing 2.2% over the past 30 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>