With Positive Fundamentals And Solid Earnings, Argus Sees D.R. Horton Shares As Undervalued

D.R. Horton, Inc. DHI reported its 3Q16 results, with the EPS in line with the consensus and representing a 13 percent rise from the year-ago period.

Argus’ Stephen Biggar maintains a Buy rating on the company, while reiterating a price target of $39.

Middle Of The Upcycle

Biggar believes that the housing market continues to be in the middle stages of an upcycle, given the severity of the previous downturn.

“We do not expect the current cycle to peak until new home sales reach at least 700,000 units, well above the 502,000 new homes sold in 2015,” the analyst mentioned.

Biggar pointed out that mortgage rates continued to be buyer-friendly. The analyst expects D.R. Horton to benefit from its range of brands for both entry level and high-end home buyers, as well as from its robust cost controls and healthy balance sheet.

The company had 14,670 homes in backlog at the end of 3Q16, a 15 percent rise from the previous year.

3Q Results

D.R. Horton reported its fiscal 3Q16 results, with the EPS at $0.66 and total revenue rising 10 percent, representing a 13 percent increase in home closings and a 4 percent rise in the average selling price.

“The results were driven by growth in the Emerald Homes line and in Express Homes,” the analyst added.

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