D.R. Horton (DHI, Financial), the largest home builder by revenue, recently reported impressive numbers for the fourth quarter. The company results were good, but fell shy of meeting consensus estimates on the earnings. The management of the company is confident that the company will perform well in the coming quarters. It is seeing robust growth in the home orders. D.R. Horton also reported a solid improvement in the pre-tax profits.
Quarterly performance and beyond
Horton’s quarterly revenue came in at $2.4 billion, up from the $1.8 billion which it posted in the same quarter last year. On the earnings front, Horton posted EPS of $0.45 per share, compared to $0.40 per share in the same quarter last year. But the earnings fell short of analysts estimates of $0.48 per share.
D.R. Horton is among the top home builders in the U.S. The strength of the company can be seen that when the overall home building sector was soft, the company generated a 20% growth, indicating that customers still trust Horton for its services.
But due to weaker than expected results, Horton saw a downfall. However, the company is now focusing on various initiatives to improve its profitability. It is strategically focusing on leveraging its competitive position to generate a double-digit growth in both revenue and pre-tax profits. This is also expected to improve its cash flows driving its growth to a better level and increasing the top line.
Growth-driving factors
On the other hand, Horton is seeing strong growth in profitability due to its branded communities which are responsible for majority of its sales in the last quarter. Horton is pleased with the progress and performance of its Express Homes and Emerald Homes brands. Its Emerald Homes Brand is seeing good momentum in the market. This luxury brand is now available in 34 markets across 14 states. Seeing this robust demand and growth potential, Horton is well positioned to introduce more Emerald Homes Communities across its potential markets in fiscal 2015.
In the new fiscal year, the company is aiming to close about 34,500 to 37,500 homes which are expected to generate $9.5 billion to $10.5 billion revenues. Horton is expecting the gross margin to improve by an impressive percentage. Horton is further expecting considerable progress this year toward its long-term goal of producing positive cash flow from operations.
The company’s cash flow from operations are also increasing as its cash used in operations of $661 million improved by $570 million from last year's level and it expects further substantial progress in company’s cash flow performance in 2015.Â
Conclusion
With a trailing P/E of 16.58, D.R Horton is cheap. While its forward P/E of 11.22 indicates good growth in the earnings of the firm, in the next five years, the company’s earnings won't be impressive with a CAGR of just 8.26%, lower than industry average of 17.99%. But as of now, the investors can count on the stock.Â
