8. DR Horton Inc. (NYSE:DHI)
Forward Price-to-Earnings Ratio: 12
Number of Hedge Fund Holders: 62
DR Horton Inc. (NYSE:DHI) is the largest homebuilder by volume in the US. It specializes in building new homes and communities across the country, and offers a range of housing options, from entry-level homes to luxury estates, to meet the diverse needs of homebuyers. The focus is on providing quality homes at affordable prices while contributing to the growth of communities.
Other than homebuilding, the homebuilder offers mortgage, title, and insurance. The homebuilder has Express Series for first-time homebuyers, Emerald Series for high-end homes, and Freedom Series for easy living and low maintenance. Rental communities for those who cannot own a home are also available.
The company’s earnings per share increased by 5% year-over-year in FQ3 2024. The company sold 24,155 homes in the quarter, generating $9.97 billion in revenue, up 2.47% from a year-ago period. It also has a strong relationship with Forestar, a company that develops land for building homes. Forestar has a lot of land available, which is good for DR Horton Inc. (NYSE:DHI) because there is a shortage of land for building homes.
Sales orders increased slightly in FQ3, from 22,794 homes to just over 23,000 homes year-over-year. However, the total value of these orders remained flat at $8.7 billion. The cancellation rate increased from 15% to 18% sequentially. The average price of homes sold decreased slightly from $379,800 to $378,900 year-over-year.
For affordability, it offers incentives like lower mortgage rates and has made some homes smaller and cheaper. Based on the strong financial position and expectation for increased cash flows, the board recently approved a new share repurchase authorization totaling $4 billion. DR Horton Inc.’s (NYSE:DHI) is positioned as a leading player in the industry.
Baron Real Estate Fund stated the following regarding D.R. Horton, Inc. (NYSE:DHI) in its Q2 2024 investor letter:
“The shares of D.R. Horton, Inc. (NYSE:DHI) underperformed during the second quarter. D.R. Horton is the largest homebuilder in the U.S., with operations in 119 markets in 33 states, and a focus on more affordable price points (70% of homes closed are below $400,000).
Share prices of U.S. homebuilders more broadly were pressured over concerns that demand for new single-family homes would slow due to stretched consumer affordability (high prices, down payments and mortgage rates) and a rise in home resale inventory across several markets. D.R. Horton has been able to successfully weather these headwinds and continue to grow owing to its affordable price points, low-cost position, and scale advantages.
We remain enthusiastic about the multi-year prospects for D.R. Horton. Our view remains that the U.S. will need to build new homes at an elevated rate for the foreseeable future in order to replenish a current structural deficit of housing stock while also housing a growing population. We anticipate that D.R. Horton will continue to grow faster than the broader housing industry as the company leverages its scale advantages to gain market share across its footprint. Furthermore, we believe that as the company continues to transition its operations to a more asset-light business model that emphasizes returns and cash flow generation, the company’s valuation multiple may expand.”
