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Why Is D.R. Horton (DHI) Up 0.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for D.R. Horton (DHI - Free Report) . Shares have added about 0.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is D.R. Horton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

D.R. Horton's (DHI - Free Report) Q2 Earnings Top Estimates, View Soft

D.R. Horton, Inc. reported better-than-expected results in second-quarter fiscal 2019, thanks to the key spring selling season, lower mortgage rates and moderate home prices. Also, its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands helped the company post improved results.

Earnings came in at 93 cents per share in the quarter, surpassing the Zacks Consensus Estimate of 86 cents by 8.1%. The reported figure also increased 2% from the year-ago profit level of 91 cents.

Revenue Discussion

Total revenues (Homebuilding, Forestar and Financial Services) came in at $4.1 billion, up 9% year over year. The reported figure also topped the consensus mark of $4 billion.

Home Closings and Orders

Homebuilding revenues of $4 billion increased 8.4% from the prior-year quarter. Home sales also increased 8.4% year over year to $3.98 billion, aided by higher home deliveries. Land/lot sales and other revenues were $14.9 million, increasing from $13.6 million a year ago.

Home closings increased 10% to 13,480 homes and 8% from the prior-year quarter to $4 billion in value. It recorded growth across all regions (barring Southwest and West) comprising East, Midwest, Southeast and South Central.

Net sales orders increased 6% year over year and 52% sequentially to 16,805 homes, with improvement in East, Midwest, Southeast regions, except South Central, Southwest and West. Value of net orders improved 4% year over year to $4.9 billion. The cancellation rate was 19%, same as the prior-year quarter.

Quarter-end sales order backlog (under contract) increased 6.6% from the prior-year quarter to 16,890 homes. Backlog value increased 3.4% from the year-ago quarter to $5 billion.

Revenues at the Financial Services segment increased to $101.6 million from the year-ago level of $94.9 million. Forestar contributed $65.4 million to its quarterly revenues, reflecting an improvement of 189.4% year over year.

Margins

The company’s consolidated pre-tax margin contracted 50 bps to 11.2% in the quarter from 11.7% a year ago.

Balance Sheet

D.R. Horton’s cash, cash equivalents and restricted cash totaled $698.8 million as of Mar 31, 2019 compared with $1,473.1 million on Sep 30, 2018.

Fiscal Q3 Guidance

The company expects revenues between $4.4 billion and $4.6 billion, homes closing within 14,500-15,000 units, and home sales gross margin in the range of 19.3-19.8% (compared with 21.9% in the year-ago period). Homebuilding SG&A expenses are expected to be 8.2-8.3% of revenues.

Fiscal 2019 Guidance

The company expects revenues between $16.7 billion and $17 billion, and homes closing within 55,000-56,000. Homebuilding cash flow from operations is projected to be at least $1 billion. Its effective tax rate is expected to be approximately 24.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.95% due to these changes.

VGM Scores

Currently, D.R. Horton has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, D.R. Horton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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