D.R. Horton Inc. (DHI) operates in 104 markets across 32 states in the United States and closed 81,749 houses in the fiscal year ending March 31, 2022. The Company builds and sells high-quality homes through its wide brand portfolio, which includes D.R. Horton, Emerald Homes, Express Homes, and Freedom Homes.

While its shares are down 31.4% year-to-date, the stock has gained 9.6% over the past month to close its last trading session at $74.40.

The company expects revenues in the $35.3-$36.1 billion range for Fiscal 2022, up from the $27.8 billion reported the previous year. Home sales are expected to be in the 88,000 to 90,000 range. In addition, revenue in the third quarter is estimated to reach $8.6-$9 billion. A large inventory of 59,800 houses towards the end of 2022 will allow the firm to capitalize on strong demand.

D.R. Horton’s Chairman of the Board, Donald R. Horton, said, “Housing market conditions remain strong despite the rise in mortgage rates, as we continue to experience homebuyer demand that exceeds our pace of supply.”

Here's what could shape DHI's performance in the upcoming months:

Strategic Acquisition

In May, DHI announced the successful completion of its cash tender offer for all outstanding shares of the common stock of Vidler Water Resources, Inc. (VWTR) through its wholly-owned subsidiary for a purchase price of $15.75 per share in cash. With this acquisition, VWTR’s water assets and water-related rights can meet DHI's water requirement for its development projects.

Strong Profitability

DHI's trailing-12-month net income margin of 16.5% is 151.9% higher than the industry average of 6.6%. Also, its ROC, ROE, and ROA are 181.5%, 98.9%, and 234.9% higher than the respective industry averages. Furthermore, its asset turnover ratio of 1.27% is 24.6% higher than the industry average of 1.02%.

During the first quarter ended March 31, 2022, DHI's revenue increased 24.1% year-over-year to $7.99 billion. The company's net income grew 54.5% from the year-ago value to $1.44 billion, while its EPS grew 59.3% from the prior-year quarter to $4.03.

Impressive Growth Prospects

Street expects DHI's revenues and EPS to rise 25.5% and 50.4% year-over-year to $34.86 billion and $17.16, respectively, in fiscal 2022. In addition, DHI's EPS is expected to rise at an 11.9% CAGR over the next five years. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 4.31x, 60.8% lower than the industry average of 10.99x. Also, its forward EV/Sales of 0.87x is 17.7% lower than the industry average of 1.06x. Moreover, DHI's forward Price/Book of 1.29x is 41.7% lower than the industry average of 2.21x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 13 Wall Street analysts that rated DHI, ten rated it Buy, and three rated it Hold. The 12-month median price target of $88.92 indicates a 19.5% potential upside. The price targets range from a low of $70.00 to a high of $120.00.

POWR Ratings Reflect Stable Prospects

DHI has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. DHI has a B grade for Growth. The analysts’ revenue and EPS growth forecasts are consistent with the Growth grade.

Of the 24 stocks in the B-rated Homebuilders industry, DHI is ranked #14.

Beyond what I've stated above, you can view DHI ratings for Sentiment, Stability, Value, Momentum, and Quality here.

Bottom Line

DHI's robust financial performance and solid growth outlook for the upcoming quarters should aid its performance in the near term. In addition, given favorable analysts' price targets and the growing demand across the housing market, the stock could deliver solid gains in the long run.

How Does D.R. Horton Inc. (DHI) Stack Up Against its Peers?

DHI has an overall POWR Rating of C, which equates to a Neutral rating. Check out these other stocks within the same industry with B (Buy) ratings: Sekisui House Ltd. (SKHSY), Skanska AB (SKBSY), and NVR Inc. (NVR).

DHI shares fell $1.10 (-1.48%) in premarket trading Wednesday. Year-to-date, DHI has declined -32.02%, versus a -20.43% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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