D.R. Horton Up 50% Over a Year: Can the Bull Run Continue?

D.R. Horton, Inc.’s DHI shares have jumped 50.2% over a year compared with the Zacks Building Products - Home Builders industry’s 45.4% rally. Also, it has outperformed the S&P 500’s 30.7% rise in the said period. The price performance was backed by the company’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in six of the trailing eight quarters. Its revenues surpassed the consensus mark in seven of the trailing eight quarters.

The bull run is likely to continue, courtesy of impressive earnings growth rate, industry-leading market share, solid acquisition strategy, affordable product offerings across multiple brands and solid housing market fundamentals.

Earnings estimates for fiscal 2020 have moved 6.5% north in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Let us delve deeper into other factors that make this stock a profitable pick.

What Makes the Stock an Attractive Pick?

Solid Underlying Housing Market Fundamentals: Improved U.S. housing market fundamentals on the back of lower mortgage rates, Fed’s dovish stance, solid economic growth and favorable demographics are expected to provide a major boost to the demand for homes in the upcoming quarters. Also, a 50-year low unemployment rate and increased wage growth make the picture rosier.

The recent housing data also reveals encouraging market prospects. The recently released housing starts data for the month of November showed a 13.6% year-over-year jump. Building permits increased 1.4% to the rate of 1.482 million units in November, the highest level since May 2007. Moreover, a survey showed that homebuilder confidence in December jumped to the highest level since June 1999.

This positive momentum is evident from the company’s strong fiscal 2019 results. Earnings per share increased 13% from a year ago and revenues grew 9.4% during the year. 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. Additionally, homebuilding cash flow from operations was $1.4 billion.

Accretive Acquisitions & Increased Capital Investments in Land: D.R. Horton — which shares space with Lennar Corporation LEN, PulteGroup, Inc. PHM and NVR, Inc. NVR in same industry — remains proactive in acquiring homebuilding companies in desirable markets. Over the past five years (through fiscal 2019), the company has invested approximately $1 billion on acquisitions. Its strong cash position and low debt/capital ratio allowed it to make strategic land purchases even during the downturn, in turn giving it a significant competitive advantage. The company has selectively invested in attractively-priced land and lots over the past few years, allowing it to bring new attractive communities in desirable markets. D.R. Horton’s well-stocked supply of land, plots and homes provides it with a strong competitive advantage to meet the demand in the coming quarters. This will in turn lead to growth in sales and home closings.

The company invested $3.7 billion in lots, land and development in fiscal 2019, almost on par with the year-ago level of $3.8 billion. It has plans to boost investments to replenish the land and lot supply in 2020 for supporting revenue growth.

Superior ROE & Solid Prospects: D.R. Horton’s return on equity (ROE) is indicative of growth potential. The company’s ROE of 16.6% compares favorably with the industry average of 12.1%, implying that it is efficient in using its shareholders’ funds.

Meanwhile, D.R. Horton has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2020 earnings of $4.89 per share, which indicates 13.9% year-over-year growth (higher than the industry average of 9.3%). Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A. On a further encouraging note, this homebuilder is expected to register 11.8% earnings growth in three-five years.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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