D.R. Horton IncorporatedDHI

Morningstar Rating

Stock Research and Analysis

by Eric Landry

As the largest and most diversified--as well as one of the lowest-cost--homebuilders, D.R. Horton has fared better than several other builders to this point in the three-plus-year downturn. It's generated a large amount of cash, fortified its balance Read more

Bulls Say

Total controlled lots that peaked at almost 400,000 have been pared to about 112,000 today. Though this represents a roughly five-year supply based upon trailing 12-month volumes, it's no longer an amount that is dangerous to shareholders. We don't expect the bulk of this land to be put into production for some time. Instead, we anticipate Horton will build primarily on new land it acquires with its ample cash hoard.

Total homes in inventory have come down by almost 75% from a peak of 40,000 in June 2006. The unsold portion is now around 7,300. We expect Horton to maintain a decent amount of spec inventory on hand, at least through April 2010. This allows the company to more easily serve clients looking for quick delivery homes, a growing trend given the pending expiration of the Federal tax credit for home buyers.

D.R. Horton's deferred tax asset valuation allowance sits at about $900 million, or almost $3 per share. It's unclear when the company will be able to reverse this allowance and in the process increase shareholder's equity by the corresponding amount. That said, we have a hunch shareholders may enjoy at least some portion of this valuation allowance peeling off as the company produces profit in 2010.

Prices in the new home market have stabilized. Horton's average order prices have been in the $204,000-$210,000 range for five quarters ended in December 2009. Average price in backlog has been relatively stable for past four quarters, and for the first time in a while, order prices are now slightly higher than delivery prices. Read more

Bears Say

The housing market is currently enjoying a substantial amount of government intervention. First-time buyers are eligible for up to an $8,000 tax credit through April, and existing homeowners are eligible for up to $6,500. In addition, the Fed is purchasing mortgage-backed securities in an effort to decrease mortgage spreads to treasuries. When the government pulls back later this year, the market will have to stand on its own for the first time in several quarters. Read more

Strategy

D.R. Horton's strategy is to be the industry's low-cost producer by spreading its overhead costs over more units than any other builder. By doing this, the firm aims to provide low-priced products in Read more

Management

D.R. Horton was founded in 1978 by current chairman Donald R. Horton. His near 9% stake (the combined Horton family owns about 12%) provides good alignment with minority shareholders. CEO Donald Tomnitz has had operational control since 2000. Four of Read more

Profile

D.R. Horton operates in 75 markets across 27 states. In fiscal 2009, the company sold 16,703 homes at an average price of $213,400 to mostly entry-level buyers. This was Read more

First Name

Last Name

Email Address

Zip Code

Create Password

Verify Password

(6-15 characters; case sensitive)

What is your occupation or job title?

Select...

Your registration indicates agreement to the terms of use.

Daily Dividend Report: DHI, EMR, PLD, CHD, HSY
Watch more