On Wednesday, BTIG adjusted its outlook on D.R. Horton (NYSE:DHI), decreasing the price target to $186 from $190, while preserving a Buy rating on the stock. The firm's analysis came after D.R. Horton reported its fourth fiscal quarter earnings per share (EPS) at $3.92, which fell short of BTIG's $4.33 forecast and the consensus estimate of $4.17.
The lower-than-expected results were attributed to various factors, including homebuilding (HB) delivery volume, pricing and margins, as well as a decline in financial services income. These were slightly offset by increased income from Forestar (FOR, Buy, $40 price target) and rental operations.
D.R. Horton's unit orders saw a marginal increase of 0.5%, which was just below BTIG's 1.2% projection. The company's guidance for the first quarter of fiscal year 2025, and for the full year, did not meet the firm's expectations.
Management cited customer hesitancy due to anticipation of falling interest rates and the outcome of the Presidential election as reasons for the cautious outlook. BTIG believes that D.R. Horton is choosing to hold and build inventory in anticipation of the spring selling season, rather than employing aggressive sales incentives in the current uncertain market.
The firm recognizes that D.R. Horton's recent quarter performance was unusually weak for a company that is not known for such outcomes, as reflected by a 7% drop in shares. However, BTIG anticipates that D.R. Horton may shift its focus slightly in the next year from maximizing sales pace to prioritizing margin and quicker build times.
This strategic shift challenges the previous assumption that D.R. Horton would concentrate primarily on market share gains. BTIG suggests that the company's guidance for fiscal year 2025 may be conservative.
Despite the near-term challenges, BTIG emphasizes that D.R. Horton's long-term strengths remain solid, including its significant local market-share positions, a low-cost and efficient production business model, and a wide geographic market presence coupled with low leverage. Consequently, BTIG has revised its fiscal year 2025 EPS estimate for D.R. Horton to $15.50, down from $16.35, factoring in slightly lower volume and pricing growth than previously anticipated.
In other recent news, D.R. Horton announced the finalization of a $700 million sale in senior unsecured notes due in 2034, resulting in net proceeds of approximately $688.5 million. The company also amended its existing master repurchase agreement through its subsidiary, DHI Mortgage Company, extending its term to May 9, 2025. This will continue to provide financing for its mortgage operations.
Citi has revised its price target for D.R. Horton to $185 from $186, maintaining a neutral stance on the company's stock. This adjustment was influenced by the company's fourth fiscal quarter performance and a less than anticipated forecast for fiscal year 2025. Citi has also adjusted its earnings estimates for D.R. Horton for fiscal years 2025 and 2026 to $2.55 and $2.40 respectively.
In addition, D.R. Horton has initiated a new share repurchase program worth up to $4 billion, indicating its robust financial health and business confidence.
InvestingPro Insights
To complement BTIG's analysis of D.R. Horton (NYSE:DHI), recent data from InvestingPro offers additional context for investors. Despite the recent earnings miss and cautious outlook, DHI's financials remain robust. The company boasts a market capitalization of $54.22 billion, with a P/E ratio of 12.58, suggesting it may still be reasonably valued despite recent stock price volatility.
InvestingPro Tips highlight that D.R. Horton has raised its dividend for 11 consecutive years, demonstrating a commitment to shareholder returns even in challenging market conditions. This aligns with the company's strong financial position, as liquid assets exceed short-term obligations, allowing for operational flexibility.
The company's revenue growth of 7.82% over the last twelve months and a gross profit margin of 24.92% indicate that D.R. Horton continues to generate healthy sales and maintain profitability, supporting BTIG's view on the company's long-term strengths. Moreover, with a return on assets of 14.91%, DHI appears to be efficiently utilizing its resources, which could be crucial as it navigates the current market uncertainties.
For investors seeking a deeper understanding of D.R. Horton's prospects, InvestingPro offers 12 additional tips, providing a comprehensive view of the company's financial health and market position.
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