D.R. Horton Inc., (DHI - Analyst Report) is set to report first quarter 2013 results on Jan 29, 2013. Last quarter it posted an earnings surprise of 7.14%. Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. D.R. Horton has been witnessing significant growth in both volumes and selling prices. Moreover, new home orders, backlogs and homes delivered have all increased in double digit percentages in fiscal 2012. D.R. Horton’s homes in inventory have also been increasing. Moreover, the company is leveraging fixed costs while also increasing production due to stronger demand.
Our proven model does not conclusively show that D.R. Horton is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate stands at 12 cents while the Zacks Consensus Estimate is higher at 14 cents. That is a difference of -14.29%.
Zacks Rank #5 (Strong Sell): D.R. Horton’s Zacks Rank #5 (Strong Sell) when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Meritage Homes Corporation (MTH - Snapshot Report), Earnings ESP of +4.76% and Zacks Rank #1 (Strong Buy).
MDC Holdings Inc. (MDC - Snapshot Report), Earnings ESP of +11.63% and Zacks Rank #1 (Strong Buy).
Ryland Group Inc. (RYL - Snapshot Report), Earnings ESP of +6.00% and Zacks Rank #2 (Buy).