
D.R. Horton Stock Looks Hot on a Housing Rebound
NEW YORK (TheStreet) -- Shares of homebuilders have skyrocketed recently, buoyed by a sustained rebound in the housing market. The SPDR S&P Homebuilder ETF (XHB) - Get Report -- up some 18% in the past year and almost 70% in the past three years -- has bested the broader indexes during that span, prompting investors to wonder if it's time to cash in. It's not.
While homebuilder stocks often trade in tandem, it would be a mistake to sell a winner like D.R. Horton (DHI) - Get Report, which reports third-quarter earnings results Tuesday ahead of the opening bell. Not only has the Fort Worth, Texas-based company become more focused on ways to raise revenue at its core homebuilder segment, D.R. Horton is also benefiting from selling higher-priced homes -- the type that generate higher margins and bring in more profits. And the company's money-making capabilities have not been lost on analysts.
For the quarter that ended in June, the average analyst EPS estimate calls for 50 cents a share on revenue of $2.71 billion, translating to year-over-year increases of 56% and 30%, respectively. For the full year, ending in September, earnings are projected to climb 24% to $1.87 a share, while revenue of $10.34 billion calls for a 32% jump.
Right away, D.R. Horton's quarterly projections stand out from those of some of its competitors, which are expected to have growth in the mid-single digits in both earnings and revenue. Yet, D.R. Horton stock only trades at 17 times earnings, which is not only three points lower than the industry average of 20, but also six points lower than the XHB. This suggests considerable value in D.R. Horton shares, despite being up some 6% on the year to date and 12% over the past year.
With the National Association of Home Builders having released its July Housing Market Index, showing a meaningful increase in housing starts from the prior month, D.R. Horton's results Tuesday should show strong signs of acceleration, especially if the company has been able to move the volume of high-priced homes as it has in prior quarters.
And here's the thing: Unlike some of its competitors, D.R. Horton, which last quarter reported a 29% year-over-year jump in its sales-order backlog, continues to benefit from pent-up demand for homes. The company has had the enviable problem of having more demand for its homes than it has had homes in inventory to sell.
To the extent the company has executed its third quarter to catch up to consumers' demand, D.R. Horton is likely to have a blowout quarter Tuesday. And investors who bail on the stock, fearing it's gotten too hot, are likely to regret it.
This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.








