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D.R. Horton Inc DHI

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Morningstar’s Analysis

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Tremendous Housing Demand Has Translated Into More Pricing Power for D.R. Horton; Raising FVE to $74

Analyst Note

| Brian Bernard, CFA, CPA |

D.R. Horton reported excellent fiscal first-quarter results as the no-moat-rated homebuilder continues to benefit from a very strong U.S. housing market. Home sales grew 48% year over year to $5.7 billion and new contracts increased 56% to 20,418. The combination of strong demand and a very limited supply of existing homes for sale has allowed D.R. Horton to maximize pricing. The average selling price of delivered homes during the quarter increased about 2% year over year, and the new contract ASP increased over 4%. Given a strong pricing environment and neutral input cost inflation during the quarter, the homebuilder reported a very strong 24.1% home sales gross profit margin. Management expects to see greater cost inflation over the coming quarters but is optimistic that pricing gains will more than offset these cost headwinds. We were pleased to see such excellent profit margins; however, we don't think that this level of profitability is sustainable over the long run. D.R. Horton's gross margins (including interest expense) have ranged between 20% and 21% over the last eight years, and we think that range is still a good midcycle assumption for the firm.  

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Company Profile

Business Description

D.R. Horton is a leading homebuilder in the United States with operations in 90 markets across 29 states. D.R. Horton mainly builds single-family detached homes (90% of home sales revenue) and offers products to entry-level, move-up, luxury buyers, and active adults. The company offers homebuyers mortgage financing and title agency services through its financial services segment. D.R. Horton's headquarters are in Arlington, Texas, and it manages five regional homebuilding offices across the United States.

1341 Horton Circle
Arlington, TX, 76011
T +1 817 390-8200
Sector Consumer Cyclical
Industry Residential Construction
Most Recent Earnings Sep 30, 2020
Fiscal Year End Sep 30, 2021
Stock Type Cyclical
Employees 9,716