DHI - Embedded Expectations Analysis - 2018 08 22
DR Horton Inc. (DHI:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 11.5x Uniform P/E. At these levels, the market is pricing in fairly bearish expectations for the firm. However, management is confident in their portfolio, revenue, and order pace, suggesting these expectations are unwarranted, and upside is likely justifiedSpecifically, management generated an excitement marker when talking about their homebuilding lot portfolio, and are confident in the strong competitive advantage it gives them in the housing market. Additionally, management is confident in the sustainability of their increased backlog value and their lower SG&A costs. Moreover, they are confident in their ability to bring Forestar to the public markets, and in their ability to expand their footprint across the U.S. through additional acquisitions. Furthermore, they are confident in their ability to sustain elevated revenue levels and order pace. Given management's positive sentiment, market expectations for Uniform ROA compression appear far too bearish, and as such, multiple expansion and equity upside continue to be warranted
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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