Morningstar | D.R. Horton Is Strongly Positioned to Benefit From Increasing Demand for Entry-Level Homes
D.R. Horton is a leading U.S. homebuilder because of its extensive geographic footprint, product breadth, value focus, and financial flexibility. Management is focused on continuing to expand the business while generating sustainable returns on invested capital and positive cash flows throughout the housing cycle. The housing market continues to recover from the 2009 bottom, albeit at a measured pace. We believe favorable demographics coupled with the realization of pent-up demand will drive a continued gradual housing recovery through the mid-2020s, with housing starts reaching over 1.4 million. We expect first-time buyers to be a main contributor to future housing demand. Recognizing the importance of the price-conscious first-time buyer in the continued recovery, D.R. Horton launched Express Homes, its true entry-level product, in spring 2014. This bet has paid off thus far as Express Homes has outperformed initial expectations. Although we expect competing products to enter the market, we believe D.R. Horton has a first-mover advantage that will boost its growth over the coming years. With ample land supply and product offerings catering to entry-level, move-up, higher-end, and active adult homebuyers, D.R. Horton is well positioned to capitalize on the demographic tailwinds driving the recovery.Industry cyclicality, capital intensity, and competition have contributed to D.R. Horton’s inconsistent and sometimes negative ROICs and cash flows. However, management believes a strong focus on prudent inventory management and capital stewardship will help stabilize and improve future ROICs and cash flow generation. D.R. Horton’s balance sheet is the strongest it has been in years, and we expect the company will use its improved financial flexibility to invest in attractive growth opportunities, such as its recent Forestar endeavor. We believe that improving new-home demand, successful inventory management initiatives, and improved financial flexibility support future double-digit top- and bottom-line growth and improving ROICs.D.R. Horton is a homebuilding company. The company's business operations consist of homebuilding, a majority-owned residential lot development company, financial services and other activities. The company's financial services operations provide mortgage financing and title agency services to homebuyers in its homebuilding markets. The company's subsidiary, DHI Mortgage, provides mortgage financing services primarily to its homebuyers and generally sells the mortgages it originates and the related servicing rights to third-party purchasers. The company's subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to its homebuyers.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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