On Friday, RBC Capital Markets adjusted its price target for D.R. Horton (NYSE:DHI), one of America's largest homebuilding companies. The firm increased the target to $154 from $141 while maintaining an Underperform rating on the stock. This decision follows a review of the company's financial projections for the upcoming years.
The firm's revised expectations for D.R. Horton's earnings per share (EPS) for fiscal year 2024 are now 5% higher at $14.64, with a similar 5% increase for fiscal year 2025 to $15.36. The analyst cites a combination of stronger gross margin percentages and softer order numbers as the basis for the adjustment.
Despite weaker orders, the market has shown a positive response to the company's financials, largely due to the anticipation of lower interest rates and management's remarks about recent improvements in customer traffic.
Investors have also been encouraged by the expectation of increased free cash flow and share buybacks in fiscal year 2025. The company's stock has experienced a significant rally, surging 24% since July 10, 2023. This rally is partly attributed to the optimism surrounding potential interest rate declines.
However, RBC Capital Markets expresses caution, suggesting that the recent price increase may not be fully justified due to the ongoing volatility and uncertainty in the macroeconomic environment, as well as the interest rates landscape. The firm also finds the current valuation of D.R. Horton unattractive, trading at 2.2 times and 1.9 times year-end fiscal year 2024 and 2025 tangible book value (TBV), respectively.
Despite the price target increase, RBC Capital Markets remains cautious about D.R. Horton's stock, indicating that while there may be positive factors at play, the overall market conditions and valuation concerns warrant a continued Underperform rating.
In other recent news, D.R. Horton witnessed a series of significant developments. Jefferies maintained a Buy rating on the company and increased its price target to $190, acknowledging the company's third fiscal quarter earnings per share (EPS) of $4.10, surpassing both Jefferies' estimate and the consensus. The company's net income for the third quarter also increased, reaching $1.4 billion, reflecting strong sales figures for new homes despite high mortgage rates.
D.R. Horton's board of directors approved a new share repurchase authorization, allowing for the buyback of up to $4 billion worth of shares. This strategic move indicates the company's financial health and its confidence in its business operations. In addition, the company reported a slight increase in earnings for its third fiscal quarter, with earnings per diluted share rising 5% to $4.10, and net income edging up 1% to $1.4 billion.
The company's financial strength is further underscored by its robust liquidity position, with a consolidated cash balance of $3.0 billion and available credit facilities totaling $5.8 billion.
InvestingPro Insights
In light of RBC Capital Markets' updated price target for D.R. Horton and the company's recent financial performance, several metrics and tips from InvestingPro provide additional context for investors. D.R. Horton's market capitalization stands at a robust $56.77 billion, reflecting its status as one of the largest homebuilders in the United States. The company's price-to-earnings (P/E) ratio is currently 11.7, with a slight adjustment in the last twelve months as of Q2 2024 to 11.35, indicating a reasonable valuation compared to industry standards.
Investors may find the company's dividend policy particularly noteworthy, as D.R. Horton has raised its dividend for 10 consecutive years, showcasing its commitment to shareholder returns. This is complemented by a 20.0% dividend growth in the last twelve months as of Q2 2024, which could be a sign of the company's financial stability and confidence in its future cash flows.
Recent price movements have been significant, with a 24.4% return over the last month and a 12.8% return over the last week, potentially signaling strong investor confidence or a reaction to market conditions. An InvestingPro Tip highlights that the stock is currently trading near its 52-week high, with the price at 97.72% of this peak. This could indicate that the stock is experiencing a moment of favor among investors, but also suggests caution as the Relative Strength Index (RSI) suggests the stock is in overbought territory.
For investors looking for more in-depth analysis and additional InvestingPro Tips, including the company's liquidity position and debt management, there are 11 more tips available on InvestingPro. These tips could provide valuable insights for making informed decisions about D.R. Horton's stock. To access these insights, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.
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