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D.R. Horton (DHI) Surges 71.3% in a Year: More Room to Run?
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The lack of existing homes for sale, improving mortgage rate scenario, along with Fed’s decision to keep the interest rate steady point to an increasingly optimistic for housing as we approach the New Year.
Among the industry bellwethers, D.R. Horton (DHI - Free Report) has been reaping the benefits of the above-mentioned tailwind along with its solid acquisition strategies, increased homebuilding lots, decreasing cycle times and diverse product offerings across multiple brands and price points.
Shares of this Arlington, TX-based homebuilder have gained 71.3% over the past year compared with the Zacks Building Products - Home Builders industry’s 67.6% rise. This Zacks Rank #3 (Hold) stock has a long-term earnings growth rate of 12.2%, which highlights its inherent strength.
However, rising land/labor and material costs and competitive pricing pressure remain concerns. Nonetheless, the Zacks Consensus Estimate has witnessed an uptrend over the past 60 days as analysts raised their estimates, depicting optimism over the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for fiscal 2024 earnings per share (EPS) has increased to $14.18 from $14.02.
Image Source: Zacks Investment Research
Let’s delve into the driving factors.
Strategic Acquisitions and Enhanced Investments in Real Estate: D.R. Horton's growth strategy places significant emphasis on accretive acquisitions. The company has been swiftly acquiring homebuilding entities in sought-after markets. Notably, during the fiscal fourth quarter of 2023, there were no reported acquisitions.
In July 2023, D.R. Horton successfully acquired the homebuilding operations of Truland Homes, operating in Baldwin County, Alabama, and Northwest Florida, for an approximate sum of $100 million in cash. The acquired assets encompass around 155 homes in inventory, 620 lots, and a sales order backlog of 55 homes. Additionally, the acquisition includes approximately 660 additional lots through land purchase contracts.
For fiscal 2023, the company's investments in homebuilding, including lots, land, and development, amounted to $8 billion for the quarter, reflecting a 6% year-over-year increase.
Improving Macro Scenario: The housing outlook is becoming more positive as we head into the New Year, with limited availability of existing homes for sale and improving mortgage rates. Notably, as the inflation rate displays indications of easing and the economy remains stable, the Federal Open Market Committee's unanimous decision to sustain the benchmark within a targeted range of 5.25%-5.5% offers stability for homebuilders. Furthermore, members of the Federal Open Market Committee have suggested the possibility of rate cuts in the upcoming year.
Affordable Homes: The company’s strategic shift toward more entry-level affordable homes has been paying off, with the segment experiencing strong demand and limited supply. First-time homebuyers represented 55% of its closings in fourth-quarter fiscal 2023. For first-quarter fiscal 2024 and the full fiscal year, our model predicts net sales orders to grow 33.4% to 17,857 units and 16.1% to 90,990 units, respectively, year over year.
Hurdles to Cross
Pressure on Margins: Escalating land and labor costs pose a threat to margins, constraining the pricing leverage of homebuilders. Labor shortages are resulting in increased wages, and limited availability is driving up land prices. Simultaneously, significant cost pressures from finished lots, skilled labor, and rising material costs (excluding lumber) may impact margins across all key regions.
In fiscal 2023, homebuilding Selling, General, and Administrative (SG&A) expenses saw a 2.4% year-over-year increase, with the SG&A expenses as a percentage of revenues reaching 7.1%, marking a 30 basis points (bps) rise from the previous year. For fiscal 2023, the consolidated pre-tax profit margin contracted 500 bps to 17.8% compared with the prior-year period. This decline is attributed to a 520 bps decrease in the home sales gross margin and a 30 bps increase in homebuilding SG&A expenses (as a percentage of revenues).
It has a trailing four-quarter earnings surprise of 25%, on average. Shares of EME have rallied 47.5% in the past year. The Zacks Consensus Estimate for EME’s 2023 sales and EPS indicates an improvement of 12% and 52.8%, respectively, from the prior-year levels.
M-tron Industries, Inc. (MPTI - Free Report) currently sports a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 217.1% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year.
Willdan Group, Inc. (WLDN - Free Report) currently sports a Zacks Rank of 1. WLDN delivered a trailing four-quarter earnings surprise of a whopping 850.6%, on average. The stock has gained 13% in the past year.
The Zacks Consensus Estimate for WLDN’s 2023 sales and EPS indicates growth of 14.1% and 47.7%, respectively, from a year ago.
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D.R. Horton (DHI) Surges 71.3% in a Year: More Room to Run?
The lack of existing homes for sale, improving mortgage rate scenario, along with Fed’s decision to keep the interest rate steady point to an increasingly optimistic for housing as we approach the New Year.
Among the industry bellwethers, D.R. Horton (DHI - Free Report) has been reaping the benefits of the above-mentioned tailwind along with its solid acquisition strategies, increased homebuilding lots, decreasing cycle times and diverse product offerings across multiple brands and price points.
Shares of this Arlington, TX-based homebuilder have gained 71.3% over the past year compared with the Zacks Building Products - Home Builders industry’s 67.6% rise. This Zacks Rank #3 (Hold) stock has a long-term earnings growth rate of 12.2%, which highlights its inherent strength.
However, rising land/labor and material costs and competitive pricing pressure remain concerns. Nonetheless, the Zacks Consensus Estimate has witnessed an uptrend over the past 60 days as analysts raised their estimates, depicting optimism over the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for fiscal 2024 earnings per share (EPS) has increased to $14.18 from $14.02.
Image Source: Zacks Investment Research
Let’s delve into the driving factors.
Strategic Acquisitions and Enhanced Investments in Real Estate: D.R. Horton's growth strategy places significant emphasis on accretive acquisitions. The company has been swiftly acquiring homebuilding entities in sought-after markets. Notably, during the fiscal fourth quarter of 2023, there were no reported acquisitions.
In July 2023, D.R. Horton successfully acquired the homebuilding operations of Truland Homes, operating in Baldwin County, Alabama, and Northwest Florida, for an approximate sum of $100 million in cash. The acquired assets encompass around 155 homes in inventory, 620 lots, and a sales order backlog of 55 homes. Additionally, the acquisition includes approximately 660 additional lots through land purchase contracts.
For fiscal 2023, the company's investments in homebuilding, including lots, land, and development, amounted to $8 billion for the quarter, reflecting a 6% year-over-year increase.
Improving Macro Scenario: The housing outlook is becoming more positive as we head into the New Year, with limited availability of existing homes for sale and improving mortgage rates. Notably, as the inflation rate displays indications of easing and the economy remains stable, the Federal Open Market Committee's unanimous decision to sustain the benchmark within a targeted range of 5.25%-5.5% offers stability for homebuilders. Furthermore, members of the Federal Open Market Committee have suggested the possibility of rate cuts in the upcoming year.
Affordable Homes: The company’s strategic shift toward more entry-level affordable homes has been paying off, with the segment experiencing strong demand and limited supply. First-time homebuyers represented 55% of its closings in fourth-quarter fiscal 2023. For first-quarter fiscal 2024 and the full fiscal year, our model predicts net sales orders to grow 33.4% to 17,857 units and 16.1% to 90,990 units, respectively, year over year.
Hurdles to Cross
Pressure on Margins: Escalating land and labor costs pose a threat to margins, constraining the pricing leverage of homebuilders. Labor shortages are resulting in increased wages, and limited availability is driving up land prices. Simultaneously, significant cost pressures from finished lots, skilled labor, and rising material costs (excluding lumber) may impact margins across all key regions.
In fiscal 2023, homebuilding Selling, General, and Administrative (SG&A) expenses saw a 2.4% year-over-year increase, with the SG&A expenses as a percentage of revenues reaching 7.1%, marking a 30 basis points (bps) rise from the previous year. For fiscal 2023, the consolidated pre-tax profit margin contracted 500 bps to 17.8% compared with the prior-year period. This decline is attributed to a 520 bps decrease in the home sales gross margin and a 30 bps increase in homebuilding SG&A expenses (as a percentage of revenues).
Better-Ranked Stocks From the Construction Sector
EMCOR Group, Inc. (EME - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
It has a trailing four-quarter earnings surprise of 25%, on average. Shares of EME have rallied 47.5% in the past year. The Zacks Consensus Estimate for EME’s 2023 sales and EPS indicates an improvement of 12% and 52.8%, respectively, from the prior-year levels.
M-tron Industries, Inc. (MPTI - Free Report) currently sports a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 217.1% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year.
Willdan Group, Inc. (WLDN - Free Report) currently sports a Zacks Rank of 1. WLDN delivered a trailing four-quarter earnings surprise of a whopping 850.6%, on average. The stock has gained 13% in the past year.
The Zacks Consensus Estimate for WLDN’s 2023 sales and EPS indicates growth of 14.1% and 47.7%, respectively, from a year ago.