Back to top

Image: Bigstock

What Supply Chain Woes? Buy Housing ETFs On Earnings Strength

Read MoreHide Full Article

The broader housing sector appears in decent shape if we go by the recently-released earnings reports. D.R. Horton Inc. (DHI - Free Report) , Beazer Homes (BZH - Free Report) and Meritage Homes Corporation (MTH - Free Report) beat overall while NVR Inc. (NVR - Free Report) came up with mixed earnings and PulteGroup (PHM - Free Report) missed on supply chain woes. Meanwhile, the home furnishing industry is appearing as a lucrative one.

This demands a close look on homebuilding ETFs like SPDR S&P Homebuilders ETF (XHB - Free Report) , iShares U.S. Home Construction ETF (ITB - Free Report) and Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) . The concerned sector – construction – falls into the top 44% segment of the total 16 covered by Zacks while the industry – Building Products - Home Builders – is currently into the top 32% of a total of 253 industries.

The recent volley of data points also paints a rosy picture about the industry. Existing-home sales in the United States (which makes up the main part of the whole industry) jumped 7% to a seasonally adjusted annual rate of 6.29 million units in September of 2021, the strongest level in eight months.

Donald R. Horton, the chairman of the board of DHI, said, "Housing market conditions remain very robust, with homebuyer demand exceeding our current capacity to deliver homes across all of our markets.” He further added, “As we navigate the current supply chain challenges, we are focused on increasing our production capacity and infrastructure to support a higher level of home starts.”

Inside Homebuilding Earnings Data Points

On Nov 9, Zacks Rank #3 (Hold) D.R. Horton Inc. reported adjusted earnings of $3.70 per share for the quarter, surpassing the Zacks Consensus Estimate of $3.40 by 8.8% and increasing a whopping 65% from the year-ago period. Total revenues (Homebuilding, Forestar, Rental and Financial Services) came in at $8.11 billion, up 26.7% year over year. Also, the reported figure surpassed the consensus mark of $7.89 billion. Shares of the company gained about 1.4% since Nov 9.

On Nov 10, Zacks Rank #1 (Strong Buy) Beazer Homes came up with quarterly earnings of $1.57 per share, beating the Zacks Consensus Estimate of $0.82 per share. This compares to earnings of $0.85 per share a year ago. The company posted revenues of $590.94 million for the quarter ended September 2021, surpassing the Zacks Consensus Estimate by 1.60%. This compares to year-ago revenues of $686.75 million.

In late October, Zacks Rank #1 Meritage Homes Corporation reported third-quarter 2021 results, which beat overall, defying the ongoing industry-wide supply-chain disruptions. Total revenues and earnings topped the Zacks Consensus Estimate for the 12th straight quarter.

Meritage Homes reported earnings of $5.25 per share, which topped the Zacks Consensus Estimate of $4.62 by 13.6% and surged 85% year over year. Total revenues (including total Closing revenues and Financial Services revenues) amounted to $1.265.1 billion, up 10.7% from the year-ago level.

In late October, Zacks Rank #3 NVR Inc. reported earnings of $86.44 per share, lagging the consensus mark of $94.38 by 8.4%. The reported figure increased 33% year over year. Revenues in the segment totaled $2.34 billion, up 22% from the year-ago level. The metric also topped the consensus estimate of $2.26 billion by 3.5%.

In late October, Zacks Rank #3 PulteGroup Inc. reported third-quarter 2021 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Adjusted earnings per share came in at $1.82, missing the consensus mark of $1.83. Earnings grew 36% from $1.34 per share a year ago. Total revenues of $3.48 billion missed the consensus mark of $3.52 billion. Revenues increased 17.7% from the year-ago figure of $2.95 billion.

ETF Impact

The above-mentioned fundamentals and earnings have opened up room for investing in housing ETFs. We highlight those in detail.

iShares U.S. Home Construction ETF

The underlying Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. The Zacks Rank #2 ITB charges 41 bps in fees.

In total, iShares U.S. Home Construction ETF holds 46 stocks. D.R. Horton (13.97%), Lennar (12.93%), NVR (7.82%) and Pultegroup (5.78%) hold the top four spots in the ITB. The ETF has advanced 12.2% past month.

SPDR S&P Homebuilders ETF

The underlying S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The Zacks Rank #2 XHB charges 35 bps in fees.

SPDR S&P Homebuilders ETF holds a total of 35 stocks. Builders FirstSource (4.44%), Williams-Sonoma (4.19%) and Lowe's Companies (4.08%) round out the top three spots of SPDR S&P Homebuilders ETF. XHB is 12.1% past month versus 3.6% gains in the S&P 500.

Direxion Daily Homebuilders & Supplies Bull 3X Shares

The underlying Dow Jones U.S. Select Home Construction Index measures U.S companies in the home construction sector that provide a wide range of products and services related to homebuilding. The net expense ratio of NAIL is 1.00%. This leveraged ETF NAIL is up 40.2% past month.