Tags: D.R. | Horton | land | DHI

D.R. Horton Could Soon Be Shopping for New Land to Develop

By    |   Tuesday, 19 June 2012 09:31 AM

D.R. Horton (DHI) is looking ahead positively, as record-low mortgage rates seem to counterbalance a weak economy. The homebuilder’s CEO recently said that the firm soon could be shopping for new land to develop, quite a shift in a sector that got badly bruised by the housing collapse.

D.R. Horton is one of the largest homebuilding companies in the United States. It constructs and sells homes in 25 states and 73 metropolitan markets of the United States, primarily under the name of D.R. Horton, America’s Builder.

D.R. Horton homes generally range in size from 1,000 to 4,000 square feet and in price from $90,000 to $600,000. In the company’s latest fiscal year, it closed 16,695 homes with an average closing sales price of approximately $212,200.

“The current downturn in our industry has resulted in a substantial decrease in the size of our operations during the last five fiscal years as we have adapted to the significantly weakened new homes market,” management said in a recent filing.

In additional to homebuilding, the company provides mortgage financing and title agency services to home buyers in many of its markets through DHI Mortgage, a wholly-owned subsidiary. The builder does not retain or service the mortgages but rather seeks to sell the mortgages and related servicing rights to third-party purchasers, historically within 30 days.

Homebuilding operations comprises approximately 98 percent of consolidated revenues, which totaled $3.6 billion in fiscal 2011. Traditional, single-family detached homes generated approximately 88 percent of home sales revenues in fiscal 2011.

“The spring selling season did arrive this year and it is still in full swing. Our net sales orders were up 55 percent sequentially from the December quarter and up 19 percent from our second quarter last year. Our average sales price increased to $222,700 during the quarter and the value of our net sales orders increased 28 percent compared to the year-ago quarter,” DHI President and CEO Donald J. Tomnitz said on a recent call with analysts.

“We've also seen continued sales strength into April. Our sales this quarter resulted in a 17 percent year-over-year increase in our backlog units, which puts us in a strong position for increased revenue and profitability in the second half of fiscal 2012.”

In response to our improving sales, D.R. Horton has increased homes under construction while reducing spec percentage to 50 percent, the lowest level in recent history, Tomnitz said. “We are also evaluating and selectively investing in land acquisition and development.”

D.R. Horton has a market cap of $5.25 billion in a sector, homebuilders, where the average company size is $1.71 billion. Its trailing 12-month P/E ratio is 39.29 and its five-year projected price-to-earnings-growth (PEG) ratio is 7.86, compared to 1.90 for the sector.

Its projected earnings per share growth for the coming year is 33.82 percent, compared to a sector average of 42.51 percent.


Wall Street is generally positive on DHI, with buy or outperform calls from Credit Suisse and Deutsche Bank. Stifel Nicolaus rates the stock a sell.

“We believe 2012 may prove to be the first year of U.S. housing recovery from deteriorating home demand witnessed in the past year. The company’s strong performance in the first half is a testament to the fact,” wrote analysts at Zacks Investment Research, rating the stock a hold.

“D.R. Horton’s strong cash flows, its geographic diversity and its solid cost discipline encourage us. All said, we would still prefer to remain on the sidelines until we witness a speedy recovery in the overall housing market.”

D.R. Horton next reports on July 26.

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Tuesday, 19 June 2012 09:31 AM
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