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An investor’s guide to major homebuilder D.R. Horton

Brent Nyitray, CFA, MBA

Key investor takeaways from D.R. Horton's Q214 earnings (Part 1 of 5)

D.R. Horton is a large, diversified, decentralized homebuilder

D.R. Horton, Inc., is one of the largest homebuilding companies in the United States. It’s geographically diversified, with operating divisions in 27 states and 78 metropolitan markets. The company markets new construction under the names of D.R. Horton, America’s Builder, Emerald Homes, and Breland Homes.

Background on the company

D.R. Horton’s price points cover a wide range of markets, from $100,000 to a $1 million, and sizes from 1,000 square feet to 4,000 square feet. In 2013, the company’s average selling price was close to $250,000, which puts D.H. Horton at the lower end of the range. Its best comp would be a company like PulteGroup, not a luxury builder like Toll Brothers. D.R. Horton is also more geographically diversified than Lennar (LEN) or KB Home (KBH).

D.R. Horton also operates a financial arm, which provides mortgage financing and ancillary services like title agency services. D.R. Horton doesn’t maintain mortgage exposure on its balance sheet—it immediately sells the loans to third parties, and most of the company’s loans are agency (Ginnie Mae and Freddie Mac). Financial services account for about 3% of D.R. Horton’s revenues.

One of the company’s big promotions is the Main Street Stars program, through which it offers special incentives or options on new homes in its communities to people who operate in some sort of public service capacity, whether they’re in the military, law enforcement, emergency services, healthcare, or education.

D.R. Horton began in Texas, and its geographic exposure extends from Texas to the Southeast and Mid-Atlantic, and through the West Coast and Southwest. The company has minimal exposure in the upper Midwest and Northeast.

Single-family detached homes accounted for 91% of D.R. Horton’s sales in 2013. As well as single-family detached homes, the company also builds condominiums and town homes. It also has some multi-family exposure.

D.R. Horton generally prefers to use land option contracts to control land as a way to minimize risk. Homebuilding is generally performed by subcontractors selected via a competitive bidding process.

Continue to Part 2

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