DR Horton, Inc. ( DHI - Analyst Report ) , one of the largest homebuilding companies in the U.S, announced the acquisition of the homebuilding business of Breland Homes, another U.S. homebuilder. With the acquisition, DR Horton will add 320 high quality homes and 1,020 finished lots to its inventory.

DR Horton has exhibited solid performance through the first three quarters of fiscal 2012, driven by its strategy of expanding operations through capital investments, maintaining inventory levels, optimizing gross margins, and restricting selling, general and administrative (SG&A) expenses and interest costs effectively. As a result, growth in high single to double digits was observed in net sales orders, homes sales closed and sales order backlog through the first three quarters of fiscal 2012.

DR Horton has been performing well by offering high quality homes with sales prices ranging from $90,000 to over $600,000. As the average sales price of these newly- acquired homes is $200,000, these fall well within the company’s pricing range.

Improved market conditions in the Midwest, Southwest and Southeast regions have accelerated DR Horton’s growth. Breland Homes, on the other hand, primarily operates in Huntsville, Mobile and Baldwin County in Alabama and along the gulf coast of Mississippi. This acquisition is expected to bolster DR Horton’s position in the highly lucrative housing market in the Southeastern region of United States

Outlook

The company expects profitability in the fourth quarter of fiscal 2012 and fiscal 2013. The company is well positioned with its strong balance sheet and liquidity and intends to further expand its business in fiscal 2013.

We currently have a Neutral recommendation on DR Horton. The stock carries a Zacks #2 Rank (a short-term ‘Buy’ rating).

We appreciate the company’s strong position and believe that the company will benefit from the recovering market conditions. However, home price appreciation is limited and there is still oversupply in the housing market.