DHI - Embedded Expectations Analysis - 2018 11 28
D.R. Horton Inc. (DHI:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 9.1x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm. However, management is confident in their option lot completions, gross margin resiliency, and their pursuit of acquisitions, suggesting these expectations are unwarranted, and upside is likely justifiedSpecifically, management is confident that 82,000 of their option lots are or will be finished when they purchase them, and that their gross margin was not impacted by hurricanes because they do not have any fixed costs in their COGS. Furthermore, they are confident that they have been actively pursuing homebuilding acquisitions across the country, and they expect to deploy $400mn to $600mn of capital for this purpose over the next few quarters. 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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