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D.R. Horton Inc. (DHI): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Posted
1/15/2014 7:00:00 AM
By: Zacks.com
Referenced Stocks:ASP;DHI

Summary:
After a strong first quarter, D.R. Horton reported better-than-expected second-quarter fiscal 2014 results surpassing the Zacks Consensus Estimate for both revenues and earnings due to improved market conditions. Earnings jumped 19% year over year driven by homebuilding revenue growth of 22% and strong gross margins. Order trends improved both year over year and sequentially. Also, the company's broad geographic footprint and strong land position keeps it well positioned to take advantage of the housing upturn. However, supply shortages and rising costs of building materials, labor and land raises serious concerns about stability in the housing market. We, therefore, revert to a Neutral recommendation on the stock from Outperform due to broader housing market concerns.

Overview:

D.R. Horton Inc., based in Texas, is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets. Homes vary in sizes from 1,000 to 4,000 square feet, with prices ranging from $100,000 to more than $1,000,000. In fiscal 2013, the company closed 24,155 homes at an average sales price (ASP) of $249,400.

D.R. Horton operates through two segments: Homebuilding and Financial Services. The Homebuilding segment comprises six reporting regions and derives revenues primarily from the sale of completed homes built on either its self-constructed or acquired lands. In addition to single-family detached homes, the segment builds attached homes, such as town homes, duplexes, triplexes and condominiums. The segment also derives revenues by selling lands and lots. The segment recorded revenues of $6.3 billion in fiscal 2013, accounting for 97% of the company's revenues.

The Financial Services segment, through the mortgage subsidiary, DHI Mortgage, derives its income from originating and selling mortgages and collecting fees for title insurance and closing services.

D.R. Horton's operations are spread over 77 metropolitan markets in 27 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the U.S. D.R. Horton's houses are sold under the brand names America's Builder, Emerald Homes, Regent Homes and Breland Homes. In early fiscal 2014, the company introduced a new brand, Express Homes, in the $120,000-150,000 range, targeted at entry level buyers, who are focused on affordability.

The company acquired the homebuilding operations of Breland Homes in Huntsville, AL in Aug 2012, and Regent Homes in Oct 2013 which operates in Charlotte, Greensboro and Winston-Salem, N.C.


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