Bank Of America Upgrades D.R. Horton To Buy Following Recent Share Pullback

Following the recent pullback in D.R. Horton, Inc. DHI shares, John Lovallo II of Bank of America Merrill Lynch stated that the current valuation offers an attractive entry point.

Lovallo upgraded the rating on the company from Neutral to Buy, with a price target of $36.

The analyst believes the stock has upside potential of 18 percent.

Expected To Outperform

“DHI is one of the strongest operators in the homebuilding group and its entry-level focus has proven both timely and differentiated. We also believe the company’s prudent approach to capital allocation and solid cash flow generation will continue to provide strategic opportunities,” Lovallo mentioned.

Related Link: Improving Economic Conditions Support Strong Home Buyer Sentiment

The analyst pointed out that D.R. Horton’s stock has tended to outperform the S&P 500 during the months of November through January over the past 24 years, since investors appear to buy homebuilder stocks in early winter in expectations of a strong spring selling season.

“In addition, DHI tends to outperform the homebuilder group during this period, given its size and liquidity relative to many peers,” Lovallo stated.

Recent Acquisition

On September 6, D.R. Horton announced the acquisition of Wilson Parker Homes for about $90 million in cash.

Bank of America continued to explain that the recent acquisition was "relatively small," but it was a "positive." Management expects the acquisition to provide more than 20 percent market share in the Atlanta market, “which should help with land and labor sourcing in the region,” the analyst added.

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