Toll Brothers

Homebuilder D.R. Horton Earnings Top Estimates; COVID-19 Pandemic Still a Big Risk

D.R. Horton, the largest homebuilder by volume in the United States, reported a better-than-expected profit in the September quarter and forecasts home sales and revenue to increase in the next fiscal year on low-interest rate, sending its shares up over 3% in pre-market trading on Tuesday.

America’s Builder said its net income surged 66% to $2.24 per diluted share in the quarter ended September 30, 2020 compared to $1.35 per diluted share in the same quarter of fiscal 2019. That was also higher than the market expectations of $1.75 per share.

Net income attributable in the fourth quarter of fiscal 2020 climbed 64% to $829.0 million compared to $505.3 million in the same quarter of fiscal 2019. Homebuilding revenue for the fourth quarter of fiscal 2020 increased 27% to $6.2 billion from $4.8 billion in the same quarter of fiscal 2019, the company said on the statement.

Homebuilder forecasts home sales in the fiscal year 2021 to be between 77,000 and 80,000 units, better than the Wall Street’s mean estimate of 75,981.

“The Company remains cautious as to the ongoing impact COVID-19 and other external factors may have on the economy and its operations. There is significant uncertainty regarding the extent to which and how long COVID-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for the Company’s homes and availability of mortgage loans to homebuyers,” D.R. Horton noted in the statement.

“The extent to which this impacts the Company’s operational and financial performance will depend on future developments, including the duration and spread of COVID-19 and the impact on D.R. Horton’s customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.”

D.R. Horton shares rose over 3% to $66.95 in pre-market trading on Tuesday; the stock is up over 20% so far this year.

Executive comments

“Our strong balance sheet, liquidity and low leverage provide us with the flexibility to operate effectively through changing economic conditions, and we plan to maintain our disciplined approach to investing capital to enhance the long-term value of our company,” said Donald R. Horton, Chairman of the Board.

“With 38,000 homes in inventory, an ample supply of lots and continued strong sales trends in October, we are well-positioned for another great year in fiscal 2021.”

D.R. Horton Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $83.50 with a high forecast of $92.00 and a low forecast of $71.00. The average price target represents a 28.56% increase from the last price of $64.95. From those nine analysts, five rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

D.R. Horton had its price target hoisted by Barclays to $81 from $73. The brokerage presently has an “overweight” rating on the construction company’s stock. Credit Suisse raised their stock price forecast to $84 from $77 and gave the stock an outperform rating. BTIG raised the stock price forecast to $92 from $85 and Evercore ISI upped their stock price target to $98 from $89.

Several other analysts have also recently commented on the stock. Seaport Global Securities lifted their price objective on D. R. Horton to $66 from $64 and gave the stock a “buy” rating in July. Susquehanna Bancshares downgraded to a “neutral” rating from a “positive” and lifted their price objective to $62 from $55 in July. At last, KeyCorp boosted their target price to $75 from $58 and gave the company an “overweight” rating.

Analyst Comments

“D.R. Horton’s shares have outperformed its industry so far this year. The price-performance was backed by the company’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in eight of the trailing 11 quarters. The uptick is expected to continue, courtesy of its impressive performance, its industry-leading market share, solid acquisition strategy, a well-stocked supply of land, lots and homes, along with affordable product offerings across multiple brands,” said equity analysts at Zacks Research.

“Improving housing market fundamentals backed by low interest/mortgage rates are encouraging. However, uncertainties in the U.S. economy arising from the COVID-19 outbreak have raised a concern. Estimates for the current year have remained unchanged over the past 60 days, limiting upside potential for the stock.”

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