D.R. Horton Immune to Winter Blast

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D.R. Horton Immune to Winter Blast

By Richard Robinson, Ph.D., Equities Analyst

As underwhelming as it was, the approaching storm in the Northeast muted the three major stock indexes on Monday.

But the storm did nothing to dampen D.R. Horton (DHI).

Shares of the country’s largest homebuilder by revenue climbed more than 5.4% on above-average volume.

DHI closed the trading day at $24.36, or $1.26 higher, with more than 12.7 million shares trading hands.

The catalyst? Strong first-quarter earnings, which were released Monday morning.

Let’s take a closer look to see if DHI is still worthy of your attention right now . . .

Clocking in a Strong First Quarter

D.R. Horton is engaged in land development, construction, and the sale of residential homes in 27 states and 79 markets in the United States.

And based on its latest quarterly results, the company is firing on all cylinders.

In the company’s Q1 report release Monday morning, D.R. Horton reported revenue of more than $2.2 billion, a 38% increase over the same period a year ago.

This was the company’s third straight quarter of accelerating revenue.

D.R. Horton’s gross profit increased 21.2% to $438.6 million, while its operating profit increased 13.3% to $206.1 million in the first quarter.

Net income for D.R. Horton was $142.5 million, or $0.39 per share, a 15.6% increase over the $123.2 million, or $0.36 per share, reported in the same quarter last year.

The company’s plan to boost sales by offering incentives such as price cuts, free appliances, and reduced closing costs has started paying benefits.

Orders in the first quarter rose 35.1% to 7,370 homes, while also growing 40% in value to more than $2.1 billion.

The company also reported that the number of home closings in the quarter increased 28.8% to 7,973, and the total value of homes closed increased by 37.4% to $2.2 billion.

Of course, the trade-off was a slightly lower margin, which fell to 19.8% from 22.3%, or 11.2% quarter over quarter.

But the lower margin was built into expectations from company executives, as well as DHI’s competitors, Lennar (LEN) and KB Home (KBH), which warned of industry-wide margin compression earlier this year.

Plus, the company benefits from a major tailwind: a growing backlog of homes.

You see, the company concluded its first quarter with a backlog of 9,285 homes, an increase of 20.8% from the backlog at this time last year. The value of the backlog has increased, as well, growing 20.8% to more than $2.7 billion.

Firm Enough Foundation?

Despite the post-earnings pop in D.R. Horton’s stock, a compelling case can be made for investors to pick up shares of DHI while interest rates remain low.

Shares trade at favorable forward valuations, including 12.9x FY 2015 estimated earnings of $1.86 . . .   and 11x FY 2016 estimated earnings of $2.18.

Further “cementing” the investment case is the fact that the company pays an annual dividend of $0.25, giving it an admittedly unspectacular 1.04% yield at current levels.

Good investing,

Richard Robinson

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By Richard Robinson