Company Information

D.R. Horton, Inc. is the largest home construction company by market share and volume in the US. The company ranked number 194 on the 2019 Fortune 500 list of the largest United States corporations by revenue. It consists of 4 brands - Dr Horton, Express Homes, Emerald Homes and Freedom Homes - with each brand targeting a particular segment of the market. It operations are divided into two segments - homebuilding operations and financial operations (DHI Mortgage Company Ltd). Approximately 90% of sales in the homebuilding come from single family detached homes, while the rest comes from duplexes, treplexes and condominiums. DR Horton operates across 29 states, with majority of its business concentrated in the South Central and Southeast regions.

Executive Summary

Investment Thesis: 

Dr. Horton’s revenue growth is projected to increase, with the growing demand for housing and more people staying at home, Dr. Horton is showing a positive rate of growth.In addition,  the company also has a good process that feeds into economy of scale nicely, they are well known for their diverse portfolio and high investment returns.  As the boom in the housing market continues, Dr Horton is well-positioned to capitalize on the surge in demand due to its dominant position as industry leader and recent increase in acquisitions of lots and residential land. In the next 6 months, Dr. Horton is projected to grow about 24.33% which is better than they have ever been. It would be a smart investment to invest now while they are at their highest growth margin.

Investment Merits: 

Soaring Demand for New Homes in the US - The pandemic has seen a rise in demand for housing in the US. This is due to two reasons - historically low interest rates and millennials entering the home buying market for the first time. In its 1Q21 earnings call, D.R. Horton noted that the surge of millennial buying in fiscal 2020 as 42% of its sales were to buyers aged 34 and below, up from 35% in FY2019. The surge in demand subsequently led to a rise in US home prices at the fastest rate since 2005. 

Strong Q2 financial performance - DR Horton exhibited a strong financial performance in Q2. Net income per diluted share increased 95% to $2.53. Consolidated revenues increased 43% to $6.4 billion. Net homes sold and homes closed increased by 35% and 36%, respectively. 

Industry Leader - As the largest firm in the home building sector by volume and market share, D.R. Horton is able to leverage relationships with its suppliers and contractors to negotiate better material prices. The numerous smaller firms produce at a far smaller scale comparable to DR Horton, leading to lower margins. 

Benefit from Biden’s Infrastructure Plan - The plan calls for $1.3 trillion dollars to be spent on transportation, power, water and broadband internet, with remaining amounts slated for significant non-construction infrastructure spending, including R&D and technology. 

Recent Acquisitions - In the recent five-year period, DR Horton has spent approximately US$ 1 billion in acquisitions to diversify geographically, most likely towards the Midwest due to the housing boom in the region. 

Investment Risks: 

Dr. Horton’s Beta- They have  a relatively high standard deviation for risks around 1.6% meaning that prices can rapidly fluctuate for Dr. Horton, however in the  short run this is relatively less risky due to fluctuations occurring more rapidly over a larger time period.

Return on Investment- Currently, the company is projected to have a high return in the next 30 days. However, if the returns come back negative, then the company is under performing.

Housing Market Crash- If housing fluctuations occur in the next several months, the demand for home renovation could potential decline

Pandemic: with people slowly moving back to inperson activities, this might lead to a decline in home decor and renovations.