Why DR Horton Earnings Are Not Impressing Investors

D.R. Horton Inc. (NYSE: DHI) reported first-quarter fiscal 2020 results before markets opened Monday. The homebuilder reported diluted earnings per share (EPS) of $1.16 on revenues of $4.02 billion. In the same period a year ago, Horton reported EPS of $0.76 on revenue of $3.52 billion. First-quarter results also compare to consensus estimates for EPS of $0.92 and $3.77 billion in revenue.

Homebuilding revenue totaled $3.9 billion, up 14% year over year, and sales closed in the quarter rose 13% to 12,959. Net sales orders increased by 19% to 13,126, with a total value of $3.9 billion, up by 22% from $3.2 billion in the year-ago quarter.

Horton reported 30,200 homes in its inventory at the end of December, and its homebuilding land and lot portfolio totaled 319,000, 39% owned and 61% controlled through land purchase contracts. In December 2018, the company reported 33,700 homes in inventory and 309,400 lots in its portfolio.

Chair Donald Horton commented:

We continue to see good demand and a limited supply of homes at affordable prices across our markets, and economic fundamentals and financing availability remain solid. … Our continued strategic focus is to grow our revenues and profits and consolidate market share, while generating strong annual operating cash flows and returns. Our balance sheet strength, liquidity and earnings growth provide us with significant financial flexibility, and we plan to maintain our disciplined, opportunistic approach to investing capital to enhance the long-term value of our company.

Horton stock added 46% in 2019, a year that saw a full reversal from 2018. It, for example, dropped 24% in 2018. Shares rose by as much as 60% in 2019, while the SPDR S&P Homebuilders ETF (NYSEARCA: XHB) rose by 36% and the iShares U.S. Home Construction ETF (NYSEARCA: ITB) jumped nearly 43%.

The company guided fiscal 2020 consolidated revenues in a range of $18.5 billion to $19.1 billion, up by $100,000 million on the high-end compared to prior guidance. The top end of guidance for homes closed rose by 500 and the new range is 60,000 to 61,500. The company reaffirmed prior guidance for cash flow from building operations of more than $1 billion. Horton expects to repurchase about 2% of its outstanding stock during the current fiscal year.

Analysts are looking for fiscal second-quarter EPS of $1.06 and revenue of $4.25 billion. For the full year, estimates call for EPS of $4.86 and revenue of $18.82 billion.

Concerns about the impact of the outbreak of the coronavirus on the global economy are driving premarket prices down, and even good news on homebuilding won’t change that.

Horton’s stock traded down about 0.3% in Monday’s premarket session, at $58.34 in a 52-week range of $34.96 to $59.86, a new high posted last Friday. The 12-month consensus price target on the stock was $58.81 before this morning’s report.

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