D.R. Horton (DHI, Financial) recently released strong results for the first quarter, beating consensus estimates. The company posted an impressive improvement in both the top and bottom lines. With a solid 37% growth in revenue and 16% growth in earnings, D.R Horton seems well positioned for a strong 2015.
Better times ahead
The performance of the company was commendable. It clearly reflects the operational excellence and success of its strategic moves that it undertook in the past to remain profitable in a soft housing market. The homebuilder is expected to gain further market share on the back of this upbeat performance in fact, the stock is currently trading close of its 52-week high. This can attract many investors to the stock.
Moving on, D.R Horton excels in its express homes scheme. It has fetched good cash on the back of its branded communities which continues to be buyer’s preference even now. It is expecting good improvement in its sales with Express Homes in future. It is focusing on attracting more buyers to it. Regarding this, it offering homes at affordable prices for the entry level buyers. This seems to be working for D.R Horton as it is seeing good traction in the market and with the growing employment levels many entry level buyers are attracted towards D.R Horton Homes.
Seeing this growth momentum, D.R Horton is planning to open Express Homes Communities in some of its key markets by the end of 2015. It also has aggressive expansion plans in 2015 which will further strengthen its position in the market.
Moving to luxury segment, Emerald Homes, which are its luxury communities are also in good shape. It has always been a major contributor to D.R Horton’s growth and even in the last quarter of fiscal 2014 it contributed a good 17% of home sales revenue. The management of the company is optimistic about its growth and expects its product mix to drive growth across its top and bottom line in upcoming quarters.
Threats
The U.S economy is growing which is leading a strong growth in the employment segment which is now generating more jobs than before. This has raised the buying capacity of the customers. Now there are large number of entry level customers coming which is a good sign for D.R Horton. However, there is other side of the coin as well. As the number of jobs are increasing, The Federal Reserve is planning to hike the interest rates and mortgage loans to maintain a balance in the economy. This might affect the buying potential of the customers and can hurt D.R Horton’s margins marginally. This is a key aspect which has to be sorted out under D.R Horton’s camp.
Conclusion
Moving to the fundamentals of the stock, with a trailing P/E of 17.4 the stock is reasonable and the forward P/E of 12.29 shows good earnings growth in the near term. With the growing housing market it is expected to gain further market in 2015. Its earnings are growing at a CAGR of 10.99% which is more than the industry average of 6.17%. Looking at the overall valuation, D.R Horton is definitely a good pick now and the investors should definitely give a thought to it.
