D.R. Horton, Inc.’s (DHI - Free Report) shares declined 3.1% yesterday, after the company delivered preliminary fiscal fourth-quarter 2018 results.
The company, which is set to report fiscal fourth-quarter results on Nov 8, stated that homes closed in the quarter increased 11% to 14,674, lagging the Zacks Consensus Estimate of 15,084. For the full year, homes closed increased 13% to 51,857 and 14% in value to $15.5 billion. Overall, revenues from home sales in fiscal 2018 grew 14% to $15.5 billion.
Additionally, D.R. Horton reported that net sales order, a key indicator of future revenues for homebuilders, increased 11% to 11,509 homes and 10% in value to $3.4 billion in the fiscal fourth quarter. For the full year, net sales orders advanced 13% to 52,740 homes and 13% to $15.8 billion in value.
As of Sep 30, 2018, D.R. Horton’s sales order backlog of homes grew 8% to 13,371 and 8% in value to $4.0 billion compared with 12,329 and $3.7 billion at fiscal 2017-end.
The company pointed out that sales absorption increased across all its brands and geographic regions through September from a year ago, signaling continued strong demand for its product offerings.
Indeed, the recent housing market data related to sales, permits, starts and existing home sales reported decelerating growth rate, which raised apprehensions about the housing recovery. Moreover, labor shortages, trade-driven material price increases, limited availability of land, along with increases in new and existing home sale prices have been making things worse. Evidently, the Zacks Homebuilding Industry has declined 31.2% year to date, whereas D.R. Horton recorded a fall of 23.8%.
D.R. Horton’s rival company, Lennar Corporation (LEN - Free Report) slashed its fourth-quarter forecast for orders and deliveries, partly due to sluggishness in the market.
That said, D.R. Horton, Lennar along with other homebuilders remain optimistic, given the strong demand trend that is prevailing in the U.S. housing market, driven by the deficit in production that has persisted over a decade. Steady job and wage growth, a recovering economy, rising rentals, rapidly increasing household formation and a limited supply of inventory point toward strong demand.
In fact, D.R. Horton remains committed toward achieving continued double-digit annual revenue growth and improved returns. With an impressive sales backlog, along with a well-stocked supply of land, lots and homes (almost 30,000 homes in inventory at the end of fiscal 2018), the company is well positioned for fiscal 2019.
Zacks Rank & Key Picks
D.R. Horton currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Construction sector are Toll Brothers, Inc (TOL - Free Report) and NCI Building Systems, Inc. (NCS - Free Report) , both carrying a Zacks Rank #2 (Buy).
Toll Brothers and NCI Building have an expected earnings growth rate of 44.2% and 81.3%, respectively, for the current year.
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