
Buy Shares of D.R. Horton, Following Release of Strong Earnings
NEW YORK (TheStreet) -- Shares of D.R. Horton (DHI) - Get Report , the largest homebuilder in the United States by volume sold, are trending more than 5% higher Monday after the company said that its fiscal first-quarter revenue surged 37% from a year earlier.
The stock is trading at about $24.32, up 5.28% from Friday's close of $23.10. The shares are down about 4% year to date, trailing both the Dow Jones Industrial Average (down 0.84%) and the S&P 500 (down 0.34%).
But that is about to change.
Ahead of the report, there were concerns that the Fort Worth, Texas-based company, which competes with Lennar (LEN) - Get Report and Meritage Homes (MTH) - Get Report , would suffer due to weaker-than-expected home sales. This is because Lennar recently disappointed investors with its results.
But the number of homes D.R. Horton that sold in the fiscal first quarter climbed 29% to 7,973, the company said.
Analysts were looking for D.R. Horton to post a 25% jump in revenue, reaching $1.67 billion. The company managed to exceed that total by 57 percentage points, posting fourth-quarter revenue of $2.24 billion, topping last year's mark of $1.63 billion.
The company also beat on earnings expectations, posting first fiscal quarter net income of $142.5 million, or 39 cents a share, up 15% and 8% year over year, respectively. Last year, the company earned $123.2 million or 36 cents a share.
As with its revenue projections, analysts were skeptical that D.R. Horton would reach these numbers, calling for a 3% year-over-year profit drop. The consensus was 35 cents a share, and that number was down from where it was at the beginning of the quarter at 37 cents a share.
With such a strong quarter and the company showing no signs of slowing down, analysts will have to revise forward estimates for the fiscal year ending in September, which stand at $1.81 a share on revenue of $9.97 billion.
"Our fiscal 2015 is off to a great start, highlighted by $220.7 million of pretax income, on $2.3 billion of revenue. Our position as the largest and most geographically diverse homebuilder provides a strong platform for us to compete for new home sales," said Chairman Donald R. Horton.
He cited his company's year-over-year increases in the value of its net sales orders, home sales revenue and sales order backlog, which are up 40%, 37% and 29%, respectively.
The sales order backlog is a huge catalyst.
The 29% increase points to a value of $2.7 billion, the company said.
This means that D.R. Horton expects at least a 21% jump in home sales volumes to 9,285 units.
With growth accelerating at a higher-than-expected rate, investors should consider buying shares of D.R. Horton, which has an average analyst 12-month price target of $26. From Friday's close of $23.10 that implies gains of 12.5%.
In addition, the company pays a yield of 1.08%, which is likely to increase due to higher profits.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








