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D.R. Horton (DHI) to Post Strong Earnings in Q3 on Higher ASP

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D.R. Horton Inc. DHI is scheduled to report third-quarter fiscal 2022 (ended Jun 30, 2022) results on Jul 21, before the opening bell.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 19.6% and 4.9%, respectively. Earnings and revenues of this homebuilding company grew 59% and 24.1%, respectively, from the year-ago reported figures.

Markedly, D.R. Horton reported better-than-expected earnings in the last 13 quarters.

The Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has moved south over the past 30 days to $4.52 from $4.54 per share. This indicates a 47.7% increase from the year-ago earnings of $3.06 per share. The consensus mark for revenues is $8.99 billion, suggesting a 23.4% year-over-year improvement.

D.R. Horton, Inc. Price and EPS Surprise

 

D.R. Horton, Inc. Price and EPS Surprise
D.R. Horton, Inc. Price and EPS Surprise

D.R. Horton, Inc. price-eps-surprise | D.R. Horton, Inc. Quote

 

Factors to Note

In the fiscal third quarter, D.R. Horton’s Homebuilding revenues are expected to have increased from the year-ago level, given continued demand amid supply chain challenges. Also, lower lumber prices and a higher average price of settlements are helping this one of the country’s largest homebuilders.

In addition, the company’s industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands are expected to have aided revenues. DHI anticipates total revenues of $8.6-$9 billion.

The Zacks Consensus Estimate for Homebuilding revenues of $8.71 billion suggests a 23.2% increase from a year ago. Within the Homebuilding umbrella, the consensus mark for Home sales revenues is expected to grow 22% to $8.64 billion. The same for Land/Lot sales is likely to decline to $26.57 million from $30.2 million a year ago.

The same for Financial Services revenues of $227 million suggests a rise of 20.1% from the year-ago level of $1.89 million.

Yet, the U.S. housing market has been grappling with uncertainties arising from skyrocketing home prices. This may have impacted DHI’s orders in the to-be-reported quarter.

Also, higher land, labor and material costs are expected to reflect on fiscal third-quarter margins to some extent. The company has been witnessing significant supply chain disruptions, including shortages and delayed delivery of certain building materials and a tight labor market. This may have created difficulties for DHI in fulfilling customer demand, thereby affecting deliveries.

Other Projections

DHI expects fiscal third-quarter homes closed within 21,500-22,500. The Zacks Consensus Estimate for homes closed is pegged at 22,429 units, suggesting growth of 3.9% from the year-ago period.

DHI expects home sales gross margin for the fiscal third quarter to be within 29-29.5% range. DHI anticipates homebuilding SG&A (as a percentage of revenues) for the fiscal third quarter to be 6.6%.

Financial services pre-tax profit margin is expected in the range of 40% and income tax rate is likely to be 24% for the fiscal third quarter.

The consensus estimate for net sales orders is currently pegged at 21,371 units. This suggests an increase from 17,952 units a year ago. The same for backlog is currently pegged at 32,794 units, suggests an increase from 32,209 units a year ago. The consensus estimate for the value of the backlog is $13.35 billion, implying an improvement from $11.02 billion in third-quarter fiscal 2021.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for D.R. Horton for the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: DHI has an Earnings ESP of -3.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model, have the right combination of elements to post an earnings beat in their respective quarters to be reported.

KBR, Inc. KBR has an Earnings ESP of +1.81% and a Zacks Rank #1.

KBR’s earnings topped the consensus mark in all the last four quarters, with the average being 12%. Earnings for the to-be-reported quarter are expected to grow 10.3% year over year.

Armstrong World Industries, Inc. AWI has an Earnings ESP of +1.02% and a Zacks Rank #3.

AWI’s earnings topped the consensus mark twice but missed the same on the other two occasions, with the average negative surprise being 0.2%. Earnings for the to-be-reported quarter are expected to grow 19% year over year.

Watsco, Inc. WSO has an Earnings ESP of +10.86% and a Zacks Rank #3.

WSO’s earnings topped the consensus mark in all the last four quarters, with the average being 24.3%. Earnings for the to-be-reported quarter are expected to grow 32.9% year over year.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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