On May 15, we upgraded our recommendation on
D.R. Horton Inc.
) from Neutral to Outperform following solid results in the
second quarter of fiscal 2013.D.R. Horton now carries a Zacks
Rank #1 (Strong Buy).
Why the Upgrade?
On Apr 26, D.R. Horton announced solid second-quarter results
beating the Zacks Consensus Estimate for both revenues and
earnings. D.R. Horton's adjusted net earnings of 32 cents per
share handsomely beat the Zacks Consensus Estimate of 20 cents by
60% and the year-ago earnings of 13 cents by 146.2%. The earnings
upsurge was driven by both sales and margin improvement in the
Homebuilding and Financial Services segments.
Homebuilding revenues climbed 48.7% year over year driven by
better pricing power and volume growth amid improved housing
market conditions. Homes sold, closed and in backlog, all
increased by more than 30% in the quarter compared to the
year-ago quarter. Margins improved both sequentially and
year-over-year driven by better pricing power and reduced
D.R. Horton's first-quarter results (announced in January)
were also quite strong beating the Zacks Consensus Estimate for
both revenues and earnings and also growing year-over-year. In
fact, D.R. Horton has beaten the Zacks Consensus Estimate for the
past four straight quarters with an average earnings surprise of
31.3%. Interestingly, pre-tax income in the first half of 2013
increased three-folds from the 2012 levels.
If market conditions remain stable, management expects the
company's profitability to increase in 2013 and 2014. This is
expected to be driven by its solid balance sheet and improved
liquidity position allowing it to re-invest in growth
opportunities; increased pricing power; and rising homes
inventory and improving land position.
The robust quarterly results and a promising outlook for the
upcoming quarters led to an upward bias in estimate revisions. In
fact, the Zacks Consensus Estimate for 2013 and 2014 increased a
respective 16.8% and 15.9% to $1.18 and $1.68 per share over the
last 30 days.
Other Stocks to Consider
Other stocks in the homebuilding sector that are performing
well and deserve a mention include
Ryland Group Inc.
Meritage Homes Corporation
), both carrying a Zacks Rank #1 (Strong Buy) and
), carrying a Zacks Rank #2 (Buy).
D R HORTON INC (DHI): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
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