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Can D.R. Horton (DHI) Spring a Surprise in Q2 Earnings?

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D.R. Horton Inc. DHI, one of the top builders in the U.S., is scheduled to report second-quarter fiscal 2017 results on Apr 20, before the opening bell.

This homebuilder posted a positive earnings surprise of 17.02% in the last quarter. Also, the company surpassed estimates in three of the last four quarters, resulting in an average positive surprise of 6.27%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Like other homebuilders, D.R. Horton is well poised to gain traction on the current positive housing scenario. Steady job and wage growth, a recovering economy, moderating home price gains, historically low interest/mortgage rates, rising rentals, rapidly increasing household formation and a limited supply of inventory point at strong demand in 2017.

As revealed on the first-quarter fiscal 2017 earnings call, D.R. Horton expects its backlog conversion rate in the range of 88% to 92% in the to-be-reported quarter. This compares favorably with the year-ago level of 86.8%. However, community count is likely to be down to some extent year over year during the quarter. Overall, the company’s order trend remained impressive over the past few quarters and is expected to be maintained in the soon to-be-reported quarter.

The company anticipates housing gross margin at around 20% (includes any purchase accounting impact from the Wilson Parker deal), slightly higher than 19.9% recorded a year ago. Further, SG&A, as a percentage of sales, is expected to be in the range of 9.3–9.5% compared with 9.6% a year ago.

Overall, D.R. Horton continues to maintain a positive outlook with revenues and profits expected to increase in double digits in fiscal 2017.

For the fiscal second quarter, the Zacks Consensus Estimate for earnings is pegged at 59 cents, reflecting a 13.4% year-over-year increase. Meanwhile, our estimate for revenues is pegged at $3.09 billion, implying an 11.6% rise.

Earnings Whispers

Our proven model does not conclusively show that D.R. Horton is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below:

Zacks ESP: D.R. Horton’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 59 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: D.R. Horton’s Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few companies in the construction sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:

Louisiana-Pacific Corporation LPX has an Earnings ESP of +27.59% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

It is slated to release quarterly results on May 5.

Weyerhaeuser Company (WY - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is slated to release quarterly results on Apr 28.

Meritage Corporation MTH has an Earnings ESP of +2.38% and a Zacks Rank #2. Meritage is slated to release quarterly results on Apr 27.

D.R. Horton, Inc. Price and EPS Surprise

 

D.R. Horton, Inc. Price and EPS Surprise | D.R. Horton, Inc. Quote

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