D.R. Horton (DHI) Up 11.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for D.R. Horton (DHI). Shares have added about 11.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is D.R. Horton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

D.R. Horton (DHI) Q3 Earnings & Revenues Beat Estimates

D.R. Horton, Inc. reported third-quarter fiscal 2020 results, wherein earnings and revenues handily beat the respective Zacks Consensus Estimate.

Its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands supported the upside. The company’s initiatives in sync with changing market conditions resulted in net sales order increase in excess of 50% in both May and June from the comparable months of the prior year.

Earnings & Revenue Discussion

D.R. Horton reported quarterly adjusted earnings of $1.72 per share, which surpassed the Zacks Consensus Estimate of $1.27 by 35.4% and increased 36.5% from the year-ago period.

Total revenues (Homebuilding, Forestar and Financial Services) came in at $5.39 billion, up 9.9% year over year. The reported figure also beat the consensus mark of $5.04 billion.

Home Closings and Orders

Homebuilding revenues of $5.22 billion increased 9.7% from the prior-year quarter. Home sales also increased 10% year over year to $5.21 billion, aided by higher home deliveries. However, land/lot sales and other revenues were $14.5 million, down from $27.5 million a year ago.

Home closings increased 10% from the prior-year quarter to 17,642 homes and 10% in value to $5.21 billion. It recorded growth across all regions comprising East, Midwest, Southeast, and South Central, barring Southwest and West.

Quarterly net sales orders increased 38% year over year to 21,519 homes. It registered growth in all geographic regions served. Value of net orders also improved 35% year over year to $6.3 billion. The cancellation rate was 22%, higher than 20% a year ago.

Order backlog of homes at quarter-end was 23,205 homes, up 41% year over year. The value of backlogs was also up 41% from the prior year to $7 billion.

Revenues from the Financial Services segment increased 30.9% from the year-ago level to $156.6 million.

Forestar contributed $177.9 million to its total quarterly revenues, reflecting a notable improvement from $88.2 million a year ago.

Margins

Home sales gross margin expanded 130 bps to 21.6%. The company’s consolidated pre-tax margin expanded 170 bps to 14.5%.

SG&A, as a percentage of homebuilding revenues, improved 20 bps to 7.9% in the quarter.

Balance Sheet Details

D.R. Horton’s cash, cash equivalents and restricted cash totaled $2.35 billion as of Jun 30, 2020 compared with $1.49 billion at fiscal 2019-end.

At the end of the reported quarter, it had $1.9 billion of unrestricted homebuilding cash and $1.8 billion of available capacity. Total homebuilding liquidity was $3.7 billion.

As of Jun 30, 2020, homebuilding debt totaled $2.5 billion, with $400 million of senior note maturities in the next 12 months.

As of Jun 30, 2020, its homebuilding debt to total capital was 18.4%. The trailing 12-month return on equity was 19.9%.

D.R. Horton repurchased 7 million shares of common stock for $360.4 million during the first nine months of fiscal 2020. The company’s remaining stock repurchase authorization — which has no expiration date — as of Jun 30, 2020 was $535.3 million.

Fiscal Q4 Guidance

The company expects revenues between $5.5 billion and $5.8 billion (indicating an increase from $5.04 billion a year ago), homes closing within 18,000-19,000 units (depicting an increase from 16,024 units of home closed a year ago), and home sales gross margin in the mid-21% range (21% was recorded in the year-ago period). Homebuilding SG&A expenses are expected to be 8-8.2% of homebuilding revenues (suggesting a decline from 8.5% a year ago).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 44.82% due to these changes.

VGM Scores

At this time, D.R. Horton has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise D.R. Horton has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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