Technology

Why Is D.R. Horton (DHI) Up 6.7% Since Last Earnings Report?

A month has gone by since the last earnings report for D.R. Horton (DHI). Shares have added about 6.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

D.R. Horton's (DHI) Q3 Earnings & Revenues Top Estimates

D.R. Horton, Inc. reported better-than-expected results in third-quarter fiscal 2019, thanks to the key spring selling season, its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands.

Earnings came in at $1.26 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.06 by 18.9%. The reported figure also increased 7% from the year-ago profit level of $1.18 per share.

Revenue Discussion

Total revenues (Homebuilding, Forestar and Financial Services) came in at $4.91 billion, up 10.6% year over year. The reported figure also topped the consensus mark of $4.51 billion.

Home Closings and Orders

Homebuilding revenues of $4.76 billion increased 10% from the prior-year quarter. Home sales also increased 11% year over year to $4.73 billion, aided by higher home deliveries. However, land/lot sales and other revenues were $27.5 million, decreasing from $59.1 million a year ago.
Home closings increased 13% to 15,971 homes and 11% from the prior-year quarter to $4.73 billion in value. It recorded growth across all regions comprising East, Midwest, Southeast, Southwest, West and South Central. Meanwhile, average home price dropped 2% from the prior-year quarter to $296,450.

Net sales orders increased 6.4% year over year to 15,588 homes, with improvement in East, Midwest, Southeast and West, except South Central and Southwest. Value of net orders improved 7.8% year over year to $4.71 billion. The cancellation rate was 20%, lower than 21% in the prior-year quarter.

Quarter-end sales order backlog (under contract) decreased marginally by 0.2% from the prior-year quarter to 16,507 homes. Backlog value also declined 0.2% from the year-ago quarter to $4.97 billion.

Revenues from the Financial Services segment increased 23.2% from the year-ago level to $119.6 million. Forestar contributed $88.2 million to its quarterly revenues, reflecting an improvement from $23.6 million a year ago.

Margins

The company’s consolidated pre-tax margin contracted 110 bps to 12.8% in the quarter from 13.9% a year ago. Home sales gross margin improved 100 bps sequentially (owing to lower sales incentives and lumber costs) but was down 160 bps year over year to 20.3% in the quarter. However, SG&A expenses — as a percentage of homebuilding revenues — remained flat year over year but improved 90 bps from the fiscal second quarter to 8.1%.

Balance Sheet

D.R. Horton’s cash, cash equivalents and restricted cash totaled $885.3 million as of Jun 30, 2019 compared with $1,506 million on Sep 30, 2018.

Fiscal Q4 Guidance

The company expects revenues between $4.75 billion and $4.9 billion, homes closing within 15,700-16,000 units, and home sales gross margin in the range of 20.4-20.7% (compared with 21.6% in the year-ago period). Homebuilding SG&A expenses are expected to be 8.1-8.3% of revenues (compared with 8.4% a year ago). Financial services pre-tax margin is anticipated within 31-34%. Its effective tax rate is expected to be approximately 24.5%.

Fiscal 2019 Guidance

The company expects revenues between $17.3 billion and $17.45 billion, and homes closing within 56,650-56,950. Homebuilding cash flow from operations is projected to be at least $1 billion.

Fiscal 2020 View

The company expects growth in the mid to high single-digit range for both revenues and homes closed.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.44% due to these changes.

VGM Scores

Currently, D.R. Horton has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise D.R. Horton has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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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.