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D.R. Horton Sales Backlog Strong, Rising Costs a Threat
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On Dec 19, we issued an updated research report on D.R. Horton, Inc. (DHI - Free Report) – one of the leading national homebuilders, engaged in the construction and sale of single-family houses, both in the entry-level and move-up markets.
D.R. Horton is committed toward maintaining double-digit annual growth in both revenues and pre-tax profits while generating positive cash flow and improved returns. With an impressive sales backlog in the fourth quarter, a well-stocked supply of land, lots and homes and the launch of Freedom Homes brand, D.R. Horton is well positioned for 2017.
Moreover, Donald Trump’s victory has driven construction-related stocks on the back of his claims to invest heavily in infrastructure projects.
However, D.R. Horton’s shares have lost over 12% year to date, compared to the Zacks categorized Building-Residential/Commercial industry’s decrease of 3.9%. Estimates have also moved down slightly. Going forward, rising land and labor costs and competitive pricing pressure could weigh on the company's performance.
Positives
D.R. Horton enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. It has been a leading homebuilder in the U.S. in terms of volume for the last fifteen years. The company offers a diversified line of homes across various price points through its multi-brand platform.
Acquisitions have also diversified the company’s operations. D.R. Horton has been acquiring homebuilding companies in desirable markets since 2012. Recently, it took over Wilson Parker Homes in Sep 2016 which was ranked as the largest builder in Atlanta by Builder magazine in 2015.
The company’s strong cash position and low debt/capital ratio allowed it to make strategic land purchases even during the downturn, thus giving it a significant competitive advantage. D.R. Horton’s well-stocked supply of land, plots and homes lend it a strong competitive position which will allow it to meet demand in the future, thereby growing sales and home closings.
Concerns
Several years of production deficits during the housing downturn limited the supply of both rental and new homes in US. At present, a shortage of buildable lots, skilled labor and available capital for smaller builders are limiting home production, thereby lowering the inventory of homes, both new and existing.
Rising land and labor costs are threatening margins as they limit homebuilders’ pricing power. Labor shortages are leading to higher wages while land prices are on the rise due to limited availability.
If mortgage rates rise further in 2017, it will dilute the demand for new homes. This will in turn lower the purchasing power of buyers and hurt volumes, revenues and profits of homebuilders.
Zacks Rank & Key Picks
D.R. Horton has a Zacks Rank #3 (Hold).
Better-ranked stocks in the construction sector include Gibraltar Industries, Inc. (ROCK - Free Report) , Hovnanian Enterprises Inc. (HOV - Free Report) and AAON, Inc. (AAON - Free Report) .
Full-year 2016 earnings for Gibraltar are expected to grow 44.9%.
Hovnanian, a Zacks Rank #2 (Buy) stock, is likely to witness 28.6% growth in fiscal 2017 earnings.
AAON carries a Zacks Rank #2. Full-year 2016 earnings for the company are expected to rise 21.4%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>
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D.R. Horton Sales Backlog Strong, Rising Costs a Threat
On Dec 19, we issued an updated research report on D.R. Horton, Inc. (DHI - Free Report) – one of the leading national homebuilders, engaged in the construction and sale of single-family houses, both in the entry-level and move-up markets.
D.R. Horton is committed toward maintaining double-digit annual growth in both revenues and pre-tax profits while generating positive cash flow and improved returns. With an impressive sales backlog in the fourth quarter, a well-stocked supply of land, lots and homes and the launch of Freedom Homes brand, D.R. Horton is well positioned for 2017.
Moreover, Donald Trump’s victory has driven construction-related stocks on the back of his claims to invest heavily in infrastructure projects.
However, D.R. Horton’s shares have lost over 12% year to date, compared to the Zacks categorized Building-Residential/Commercial industry’s decrease of 3.9%. Estimates have also moved down slightly. Going forward, rising land and labor costs and competitive pricing pressure could weigh on the company's performance.
Positives
D.R. Horton enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. It has been a leading homebuilder in the U.S. in terms of volume for the last fifteen years. The company offers a diversified line of homes across various price points through its multi-brand platform.
Acquisitions have also diversified the company’s operations. D.R. Horton has been acquiring homebuilding companies in desirable markets since 2012. Recently, it took over Wilson Parker Homes in Sep 2016 which was ranked as the largest builder in Atlanta by Builder magazine in 2015.
The company’s strong cash position and low debt/capital ratio allowed it to make strategic land purchases even during the downturn, thus giving it a significant competitive advantage. D.R. Horton’s well-stocked supply of land, plots and homes lend it a strong competitive position which will allow it to meet demand in the future, thereby growing sales and home closings.
Concerns
Several years of production deficits during the housing downturn limited the supply of both rental and new homes in US. At present, a shortage of buildable lots, skilled labor and available capital for smaller builders are limiting home production, thereby lowering the inventory of homes, both new and existing.
Rising land and labor costs are threatening margins as they limit homebuilders’ pricing power. Labor shortages are leading to higher wages while land prices are on the rise due to limited availability.
If mortgage rates rise further in 2017, it will dilute the demand for new homes. This will in turn lower the purchasing power of buyers and hurt volumes, revenues and profits of homebuilders.
Zacks Rank & Key Picks
D.R. Horton has a Zacks Rank #3 (Hold).
Better-ranked stocks in the construction sector include Gibraltar Industries, Inc. (ROCK - Free Report) , Hovnanian Enterprises Inc. (HOV - Free Report) and AAON, Inc. (AAON - Free Report) .
Gibraltar sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Full-year 2016 earnings for Gibraltar are expected to grow 44.9%.
Hovnanian, a Zacks Rank #2 (Buy) stock, is likely to witness 28.6% growth in fiscal 2017 earnings.
AAON carries a Zacks Rank #2. Full-year 2016 earnings for the company are expected to rise 21.4%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>