D.R. Horton (DHI, Financial) has started the year with solid results in the first quarter and seems poised for the remaining part of 2015. There were concerns in the housing industry regarding the impact of oil prices on their financials especially in Texas. But the company proved it all wrong with both its revenue and earnings exceeding the street expectations. Led by these tailwinds, the stock touched its 52-week high few days back and is expected to do even better in the days ahead.Â
A closer look at its performance
During the quarter, its revenue increased 37% from last year to $2.2 billion, while earnings rose 16% to 39 cents a share compared to 38 cents last year. Home building revenue was the main growth engine that surged 38% on account of higher closings along with improving trends in orders and pricing gains. The numbers clearly reflect the strength of its strategic decisions, which in fact will be the decisive factor as challenges mount up on the housing industry in coming months.
Apart from this, Horton had a strong growth in the past months led by its branded communities, which in fact accounted for majority of its sales and closings this quarter. Additionally, the home builder made considerable progress in the rollout of its express homes, which is focused on affordability and targeted at entry level buyers. Led by a positive response from buyers, Horton has decided to open Express Homes communities in majority of its markets by the end of this fiscal 2015. Currently it is being offered in 38 markets and 11 states and its expansion into new markets will boost its business.
Express Homes are good from buyer’s perspective while it contributes only 6% to home sales revenue of the company. In addition, its backlogs increased 21% from last year and the backlog conversion rate also rose 81%, which is expected to reach 85% for the second quarter. All these values will add to its top line in the days to come. As a result of such improving trends, the company expects its revenue to increase 20% to 30% for the full year with similar levels of profitability and operating margins.
Conclusion
Currently the company has a trailing P/E of 17.4 but its forward P/E looks impressive at 12.29, reflecting improvement in its earnings. Analyzing the charts, we could observe that the stock had been moving sideways for the past two years. However, it broke out of this range and is presently near its two year high, which could continue in the coming years. Therefore in the light of these facts D.R. Horton seems to be a good investment option.
