D.R. Horton Inc.
) is set to report fourth-quarter and fiscal 2013 results on Nov
12 before the market opens. Last quarter, the homebuilder
delivered a 23.5% positive earnings surprise. Let's see how
things are shaping up for this announcement.
Factors to Consider this Quarter
A sharp increase in interest/mortgage rates slowed order
growth in the later half of third quarter. However, volumes
returned to the normal seasonal trend in the first three weeks of
July. Management believes the slowing sales pace could be
temporary and order trends might improve in the fourth quarter as
interest rates are still below historical levels and homes are
still increasingly affordable. The community count is expected to
increase in the range of 15%-20% in the fourth quarter, which
could further improve volumes.
Gross margin is expected to be approximately 21% in the fourth
quarter of 2013 which represents both a sequential and
year-over-year improvement. In the fourth quarter, selling,
general and administrative (SG&A) ratio is expected to be
around 10% due to stronger home closings and better fixed cost
leverage. In the fourth quarter, the backlog conversion rate is
expected to be around 70%.
Management expects the company's profitability to increase in
the fourth quarter as well as in 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
Our proven model does not conclusively show that D.R Horton is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive
and a Zacks Rank of #1, 2 or 3 for this to happen. That is not
the case here, as you will see below.
The Zacks ESP is 0.0%.
D.R. Horton's Zacks Rank #3 (Hold), when combined with 0.0% ESP,
makes surprise prediction difficult. We caution against stocks
with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the
earnings announcement, especially when the company is seeing
negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the construction sector that
can be considered as our model shows that they have the right
combination of elements to post an earnings beat this
), with Earnings ESP of +13.3% and a Zacks Rank #2 (Buy).
), with Earnings ESP of +72.7% and a Zacks Rank #3 (Hold).
), with Earnings ESP of +2.2% and a Zacks Rank #3 (Hold).
D R HORTON INC (DHI): Free Stock Analysis
GAFISA SA-ADR (GFA): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
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