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D.R. Horton (DHI) Up 2.9% Since Last Earnings Report: Can It Continue?

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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 2.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

D.R. Horton’s Q4 Earnings & Revenues Beat Estimates

D.R. Horton, Inc. reported better-than-expected results in fourth-quarter fiscal 2019, thanks to its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands. Earnings came in at $1.35 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.25 by 8%. The reported figure also increased 11% from the year-ago profit of $1.22 per share.

Revenue Discussion

Total revenues (Homebuilding, Forestar and Financial Services) came in at $5.04 billion, up 11.7% year over year. The reported figure also topped the consensus mark of $4.84 billion.

Home Closings and Orders

Homebuilding revenues of $4.84 billion increased 10.2% from the prior-year quarter. Home sales also increased 9.6% year over year to $4.79 billion, aided by higher home deliveries. Also, land/lot sales and other revenues were $42.8 million, increasing from $12.7 million a year ago.

Home closings increased 9% from the prior-year quarter to 16,024 and 10% in value to $4.8 billion. It recorded growth across regions comprising East, Midwest, Southeast, West and South Central, except Southwest. The company’s average closing price for the quarter was $299,500, remaining flat with the year-ago level.

Net sales orders increased 14% year over year to 13,130 homes, with improvement in East, Midwest, Southeast, South Central and West (barring Southwest). Value of net orders also improved 16% year over year to $4 billion. The cancellation rate was 23%, lower than 26% in the prior-year quarter.

Revenues from the Financial Services segment increased 32.3% from the year-ago level to $135.2 million. Forestar contributed $236.3 million to its quarterly revenues, reflecting an improvement from $32.2 million a year ago.

Margins

Gross margin on home sales revenue in the quarter was 21%, up 70 basis points (bps) sequentially, primarily attributable to lower sales incentives. However, the metric was down 60 bps from 21.6% a year ago.

In the quarter, SG&A expense (as a percentage of homebuilding revenues) was 8.5%, up 10 bps from the prior year quarter. The increase was primarily due to compensation accruals related to increases in its stock price. The company’s consolidated pre-tax margin contracted 40 bps to 13.1% in the quarter from 13.5% a year ago.

Fiscal 2019 Highlights

Earnings came in at $4.29 per share for the fiscal year, increasing 13% year over year. Total revenues also grew 9.4% from a year ago to $17.59 billion. Notably, with 56,975 homes closed in fiscal 2019, D.R. Horton completed its 18th consecutive year as the largest homebuilder in the United States. In fiscal 2019, homes closed increased 10% year over year to 56,975 units and 9% in value to $16.9 billion.

Balance Sheet

D.R. Horton’s cash, cash equivalents and restricted cash totaled $1,494.3 million as of Sep 30, 2019 compared with $1,473.1 million in the corresponding period of 2018.

Fiscal Q1 Guidance

Based on current market conditions, the company expects home sales gross margin in the quarter to be consistent with the fiscal fourth quarter. The company expects revenues between $3.7 billion and $3.8 billion, homes closing within 12,100-12,400 units, and home sales gross margin to be approximately 21% (compared with 20% in the year-ago period). Homebuilding SG&A expenses are expected to be around 9.5% of homebuilding revenues (almost flat year over year). Its effective tax rate is expected to be approximately 25%.

Fiscal 2020 Guidance

The company continues to expect growth in the mid to high single-digit range for both revenues and homes closed. The company expects revenues between $18.5 billion and $19 billion, and homes closing within 60,000-61,000. Homebuilding cash flow from operations is projected to be in excess of $1 billion. Its effective tax rate is expected to be approximately 25%. The company intends to reduce share count by 2% in fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 11.55% due to these changes.

VGM Scores

Currently, D.R. Horton has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise D.R. Horton has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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