It has been about a month since the last earnings report for D.R. Horton (DHI Quick QuoteDHI - Free Report) . Shares have added about 21.2% 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 catalysts.

D.R. Horton's (DHI Quick QuoteDHI - Free Report) Q2 Earnings Top Estimates

D.R. Horton, Inc. reported mixed results in second-quarter fiscal 2020, wherein earnings topped the Zacks Consensus Estimate but revenues lagged the same.

Its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands supported the growth. However, a drop in the demand for homes in late March on a year-over-year basis — owing to the persistent COVID-19 pandemic spread — somewhat impacted top-line growth.

The company witnessed increase in sales cancellations and decrease in orders to date in April compared with the prior-year period owing to the COVID-19 pandemic. Its net sales orders are approximately 11% lower year over year month to date in April. Its mortgage subsidiary — DHI Mortgage — has experienced lower pricing and gains on the sales of mortgage loans and servicing rights in late March and April due to disruption in secondary mortgage markets.

Uncertainties in business operations arising from the COVID-19 outbreak prompted D.R. Horton to withdraw its previously issued fiscal 2020 guidance.

Earnings & Revenue Discussion

The company reported adjusted earnings of $1.30 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.12 by 16.1% and increasing 39.8% from the year-ago period.

Total revenues (Homebuilding, Forestar and Financial Services) came in at $4.5 billion, up 9% year over year. However, the reported figure missed the consensus mark of $4.57 billion by 1.6%.

Home Closings and Orders

Homebuilding revenues of $4.38 billion increased 9.6% from the prior-year quarter. Home sales also increased 9.6% year over year to $4.36 billion, aided by higher home deliveries. However, land/lot sales and other revenues were $32.2 million, down from $46.6 million a year ago.

Home closings increased 8% from the prior-year quarter to 14,539 homes and 10% in value to $4.4 billion. It recorded growth across all regions comprising East, Midwest, Southeast, West and South Central, and Southwest.

Net sales orders in the quarter increased 20% year over year to 20,087 homes. It registered double-digit growth in all geographic regions served, except Southeast, which recorded 7% net sales order growth. Value of net orders also improved 22% year over year to $6 billion. The cancellation rate was 19%, unchanged from the prior-year quarter.

Order backlog of homes at the end of the quarter was 19,328 homes, up 14% year over year. The value of backlogs was also up 18% from the prior year to $5.9 billion.

Revenues from the Financial Services segment increased 2.9% from the year-ago level to $104.5 million.

Forestar contributed $159.1 million to its total quarterly revenues, reflecting a notable improvement from $65.4 million a year ago.

Margins

Gross margin on home sales revenues in the quarter was 21.3%, up 200 basis points (bps) year over year and 30 bps sequentially. In the quarter, SG&A expense (as a percentage of homebuilding revenues) was 8.3%, down 70 bps from the prior year quarter. The company’s consolidated pre-tax margin expanded 260 bps to 13.8% in the quarter.

Balance Sheet Details

D.R. Horton’s cash, cash equivalents and restricted cash totaled $1.52 billion as of Mar 31, 2020 compared with $1.49 billion at fiscal 2019-end. At the end of the reported quarter, it had $1 billion of unrestricted homebuilding cash and $1 billion of available capacity on the $1.6-billion revolving credit facility. Total homebuilding liquidity was $2 billion. As of Mar 31, 2020, homebuilding debt totaled $2.5 billion, with $400 million of senior note maturities in the next 12 months. As of Mar 31, 2020, its homebuilding debt to total capital was 19.2%. Its trailing 12-month return on equity was 19.1%.

At the end of the fiscal second quarter, the company had 33,400 homes in inventory, of which 16,700 were unsold. It had 329,300 lots remaining, of which 36% were owned and 64% were controlled through land purchase contracts. It repurchased 4 million shares of common stock for $197.3 million during second-quarter fiscal 2020. The company’s remaining stock repurchase authorization — which has no expiration date — was $535.3 million as of Mar 31, 2020. In the first half of fiscal 2020, cash used in operations was $395.1 million compared with 461.7 million in the corresponding year-ago period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, D.R. Horton has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward 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.