D.R. Horton (DHI)
D.R. Horton is one of the largest homebuilders in the United Sates. The company was founded in 1978 by Donald R. Horton in Fort Worth, TX but now is headquartered in Arlington, TX. D.R. Horton primarily builds single-family homes but also offers townhomes and condos. The company offers a wide-range of price points, from starter homes all the way up to high-end luxury properties.
Here are some of D.R. Horton’s financial metrics:
Is D.R. Horton a winner?
Over the past decade DHI 0.00%↑ has a total return of a little more than 20% per year, outpacing the S&P 500 ETF Trust SPY 0.00%↑ by about 7% annually. In reviewing the last 10 years of this company, the stock is either a bust or a home run with the exception of 2024. Since 2015 the stock has had 4 down years, 2016 where it declined 13.66%, 2018 where it declined more than 31%, 2022 where it dropped almost 17% and just last year where it lost a little more than 7%. Conversely, the company has also had 6 up years during the same timeframe, with its best year coming in 2017 where it surged almost 90%. It’s worth mentioning D.R. Horton had 4 years where the stock returned at least 54%, quite an amazing feat. Although the returns have sort of been boom or bust, overall the stock has handily beat the overall market and is a clear winner.
Quality Metrics
There are three quantitative characteristics that I feel are vitally important in determining if a company is a high-quality business. A given company should have a growing revenue stream, a consistent or increasing gross profit margin and a healthy return on invested capital. Below we’ll take a look at these metrics for DHI 0.00%↑ and see how they stack up.
DHI’s revenue per share was growing at a steady pace early during the past decade, increasing in the low teens annually. However, from 2020 through 2022 the company saw massive growth in their revenue per share numbers, with increases of 17.7%, 38.4% an 23.8%. The cause of these increases are twofold, with the most obvious being a significant increase in sales. The other reason for the rise in RPS is the reduction in share count, with the company reducing its net shares outstanding by 1.2%, 2.2% and 3.4% during those 3 years. Lastly, in the most recent 2 fiscal years the company has seen mid to high single digit RPS growth.
The gross profit margin was fairly steady for DHI from FY 2015 through FY 2020, with some minor fluctuations. In 2021, this metric expanded by 400 bps, to 26.8% from 22.8%, and during 2022 it grew another 12% to arrive at GPM of slightly above 30%. The GPM has suffered during the last two fiscal years with it dropping to 25% in FY 2023, and dipping again slightly in FY 2024 to just below 25%.
The return on invested capital follows a similar pattern to the previous two metrics. The ROIC steadily grew from 8.9% in FY 2015 to 17% in FY 2020, before it grew by nearly 50% in FY 21 to more than 25%. DHI’s return on invested capital expanded again but only slightly in FY 22 to 26.7% before declining in the most recent two fiscal years.
D.R. Horton has grown revenue at a decent clip during the past decade, with some years being better than others. The GPM and ROIC have followed each other since 2015, and while both metrics have gotten better over the years, to be honest they have struggled recently. Unfortunately, homebuilding stocks are cyclical and rise when the economy is strong and contracts when the economy struggles. Currently, these metrics are quite good and because of that, I believe D.R. Horton is a high-quality company.
Dividend Data
Since we are trying to find a quality dividend company, it only makes sense we examine the company’s dividend history.
DHI 0.00%↑ has paid a growing dividend for about 10 years now, and in October of last year announced a massive 33% increase in their dividend, from $0.30 to $0.40 per quarter. This increase was well above the company’s 3-, 5- and 10-year dividend growth rates which sit at 16.37%, 15.77% and 19.02% respectively.
As you can see from the chart below, while the dividend has been increasing, the payout ratio has remained very low, never exceeding more than about 15% of earnings.
Although the company doesn’t offer much in terms of yield and hasn’t been growing their dividend for nearly as long as some other companies we’ve covered, it appears DHI 0.00%↑ has “regulated” their dividend growth. This consistency, combined with their low payout ratio should result in continued dividend growth.
Recent Earnings
On Tuesday, October 29th of last year the company announced earnings for Q4 2024. The company missed both earnings per share and revenue estimates, with EPS coming in at $3.92, $0.24 short of expectations on revenue of $10B, which missed by $190M, and was a 4.8% drop year-over-year. The company did announce more than 23,600 home closings during the quarter which accounted for almost 90% of all revenue.
Net income for the quarter was $1.3B compared to 1.5B for the same period a year ago. And, for the entire 2024 FY, earnings per share rose 4% to $14.34 from $13.82 on net income of $4.8B.
Although the company saw a decrease in total revenue for the quarter, for the fiscal year this metric increased 4% to $36.8 billion from $35.5 billion.
Additionally, homes closed for the entire fiscal year increased by 8% to nearly 90,000 homes compared to approximately 83,000 homes during the prior fiscal year.
Lastly, at the end of FY 2024 (9/30/24) the company had about 37,400 homes in their inventory, of which a little less than 70% were unsold, with about 10,300 of those homes completed.
As for the rental operations of D.R. Horton, the company was able to generate revenues of $704.8M compared to $1.4B in the 4th quarter of FY 2023. For the FY ended 9/30/24 rental operations realized $1.7B in revenue compared to $2.6B in FY 2023.
Finally, the company repurchased 3.4M shares of stock during the quarter for approximately $561M, and brought their FY 2024 total to 12.5M shares, for a total for $1.8B, reducing the total share count during FY 24 by 3%.
The full earnings release can be read/listen to here.
Valuation
The last piece of this puzzle is to determine if DHI 0.00%↑ is trading for an attractive valuation currently. The custom FCF valuation tool suggests the company is pretty close to fair value, with a conservative fair value estimate of $135. Typically I would provide a screenshot of the valuation model here but due to DHI 0.00%↑ having a couple years of negative FCF the chart doesn’t look right and therefore doesn’t add much value.
The negative FCF numbers are from a while back (2012-2014) and since then the company has seen some pretty dramatic fluctuations in their FCF.
DHI 0.00%↑ currently has a robust long-term expected rate of 19.32%, with the components of that estimate being:
A current dividend yield of 1.14%.
A return to fair value factor of -0.79%.
An expected earnings growth rate of 18.96%.
In summary, DHI 0.00%↑ has a provided investors with exceptional returns over the past decade outperforming the overall market by a pretty healthy amount. DHI 0.00%↑ and the other homebuilders have benefitted from the current housing market shortage which has led to some pretty good financial metrics in recent years. The company has grown its dividend for about a decade and I see no reason their dividend growth shouldn’t continue. The valuation seems reasonable at this point and investors may want to monitor this company for any price weakness and potentially cease that as a buying opportunity.
The quality score for DHI 0.00%↑ is a reasonable 80%, given the cyclical nature of the business this may fluctuate a little more than other companies.
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