On Friday, BTIG adjusted its price target on shares of D.R. Horton (NYSE:DHI), one of America's largest homebuilding companies, to $168 from the previous $169 while maintaining a Buy rating on the stock. The revision follows D.R. Horton's fiscal second-quarter earnings report, which revealed earnings per share (EPS) of $3.52, surpassing BTIG's estimate of $3.14 and the FactSet consensus of $3.07.
The higher-than-expected results were attributed to a combination of factors including increased delivery volume, higher gross margin, and lower sales, general and administrative expenses per home, coupled with a lower tax rate than anticipated. However, these were partially offset by a decrease in average selling price, rental pre-tax income, and financial services pre-tax income.
D.R. Horton's unit orders saw a 14% growth, which fell slightly short of BTIG's 16% projection. Despite the volatility in interest rates, the company experienced a "very good" sales pace during the last six weeks, in line with its plans.
This performance, along with the normalization of cycle times to four months and a significant inventory of spec homes under construction, has bolstered BTIG's confidence in D.R. Horton's raised full-year volume guidance, which now indicates a midpoint increase of 2%.
Management's confidence in maintaining or improving margins in the third quarter compared to the second quarter was noted as an unexpected positive. However, BTIG suggests that the strong volume in the second quarter may have drawn forward some sales from the second half of the year, considering the approximately 2,300-unit beat compared to a guidance increase of 1,500 units.
Amid concerns over persistently high interest rates potentially necessitating mortgage rate buydowns in the second half of the fiscal year, BTIG has made slight reductions to its EPS estimates for D.R. Horton. For fiscal year 2024, the estimate has been adjusted to $14.55 from $14.70, and for fiscal year 2025, the estimate is now set at $16.40, down from $16.60.
Despite these adjustments and the minor decrease in the price target, BTIG continues to view D.R. Horton as well-positioned relative to its peers, citing the company's strong local market-share positions, cost-efficient production model, wide geographic market reach, and focus on affordable entry-level homes. Additionally, D.R. Horton's low leverage and high returns contribute to the firm's positive outlook on the stock.
InvestingPro Insights
Recent data from InvestingPro highlights D.R. Horton's (NYSE:DHI) financial resilience and market position. The company's market capitalization stands at a robust $48.17 billion, reflecting its significant presence in the industry. With a Price-to-Earnings (P/E) ratio of 9.91 and an adjusted P/E for the last twelve months as of Q2 2024 at 9.63, D.R. Horton showcases a valuation that suggests efficiency in earnings generation relative to its share price. Additionally, the company's revenue growth of 10.12% over the last twelve months points to its ability to expand effectively in the competitive homebuilding sector.
InvestingPro Tips also reveal that D.R. Horton has maintained a consistent dividend payout, raising its dividend for 10 consecutive years, which could be an attractive point for income-focused investors. Furthermore, the company's liquid assets surpassing short-term obligations indicate a strong liquidity position, ensuring it can meet its immediate financial commitments.
For investors seeking more detailed analysis and additional InvestingPro Tips, there are 11 more insights available on D.R. Horton, which can be further explored at InvestingPro. To enhance your investment strategy with these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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