Group 1: Market Overview - Major U.S. market indexes are experiencing a summer pullback, with a shift in focus towards August and corporate earnings, particularly in the tech sector [1] - The U.S. economy grew at an annualized pace of 2.8% in Q2, surpassing the expected 2% growth [1] - Interest rate-sensitive areas of the market are showing renewed strength as the Fed approaches its first interest rate cut of the cycle [1] Group 2: Inflation Trends - The Personal Consumption Expenditures (PCE) index for June showed a year-over-year price increase of 2.5%, aligning with economists' projections [2] - The core PCE, which excludes food and energy costs, rose 2.6% year-over-year, marking the slowest annual increase in over three years [2] - Fed Chair Jerome Powell indicated that the central bank is likely to cut rates soon, although he is waiting for more confirmation on inflation reaching the 2% target [2][3] Group 3: Homebuilder Industry Performance - Interest-rate sensitive homebuilders have surged over 20% in July due to low existing housing inventory and a favorable rate outlook [4] - The Zacks Building Products – Homebuilder industry is ranked in the top 14% of approximately 250 industry groups, indicating strong future performance potential [5] - D.R. Horton reported fiscal Q3 earnings of $4.10/share, a 7.9% surprise, with total revenues of $10 billion, a 2% increase from the prior year [6] - PulteGroup reported Q2 earnings of $3.58/share, reflecting an 11.5% surprise and a 19.3% increase year-over-year, with total revenues of $4.6 billion, up 9.8% from the previous year [7] Group 4: Investment Strategy - Investors are advised to be selective and target stocks breaking out of proper bases while diversifying into leading industries [8] - Other market sectors outside of tech are showing strength, suggesting a broadening rally [8]

Core Viewpoint - The U.S. housing market is experiencing a cooling trend after significant gains during the Covid pandemic, impacting home builders and related stocks, which have shown mixed performance year-to-date compared to the S&P 500 [1][2]. Housing Market Overview - The "lock-in" effect has reduced the supply of existing homes, as homeowners with lower mortgage rates are less likely to sell, leading to decreased overall demand for new homes [2]. - In June, new single-family home sales fell 0.6% to 617,000 units, marking a seven-month low, with a year-over-year decline of 7.4%. The average price for new homes remained stable at $417,300 [3]. - The average 30-year fixed mortgage rate is currently about 6.8%, up from 6.6% in January, influenced by inflation concerns and expectations of sustained high benchmark interest rates [3]. Company Performance - D.R. Horton, Inc. (DHI) stock has surged 150% from $70 in early January 2021 to approximately $175, outperforming the S&P 500, which increased by about 45% during the same period [4]. - DHI's stock returns were 57% in 2021, -18% in 2022, and 70% in 2023, consistently beating the S&P 500's performance [4]. - D.R. Horton reported Q3 FY'24 earnings of $4.10 per share, a 5% increase from the previous year, and announced a new $4 billion share-repurchase program [5]. Future Outlook - Despite the uncertain macroeconomic environment, there is a fundamental under-supply of homes in the U.S., which may provide good demand visibility for major housing players [5]. - The Federal Reserve is contemplating an interest rate cut this year, which could lower mortgage rates and stimulate demand for housing [5]. - Easing supply chain constraints and price corrections for construction materials may also benefit home builders [5].

Investment Rating - The report does not provide a specific investment rating for the company [1][5] Core Views - The company's FY2024Q3 performance exceeded expectations with revenue of $10 billion, a 2.5% YoY increase, and net income attributable to shareholders of $1.35 billion, a 1.4% YoY increase [1][5] - The company's new home sales remained robust, with 24,155 homes delivered in FY2024Q3, a 5% YoY increase, and 23,001 homes sold, a 1% YoY increase [1][6] - The company's financial position is strong, with $3 billion in cash and $5.7 billion in interest-bearing debt, resulting in a net debt ratio of 10.6% and a total capital debt ratio of 18.8% [1][8] - The company announced a new $4 billion share repurchase plan, representing approximately 7% of its market capitalization as of July 19, 2024 [1][9] Financial Performance - FY2024Q3 revenue was $10 billion, exceeding the company's guidance and representing a 2.5% YoY increase [1][5] - Net income attributable to shareholders was $1.35 billion, a 1.4% YoY increase [1][5] - Gross margin for the quarter was 26.5%, a slight decrease of 0.1 percentage points YoY [1][5] - Net margin attributable to shareholders was 13.6%, also a slight decrease of 0.1 percentage points YoY [1][5] - Quarterly dividend per share was $0.3, a 20% YoY increase [1][5] Operational Performance - The company delivered 24,155 homes in FY2024Q3, a 5% YoY increase, with recognized revenue of $9.2 billion, a 6% YoY increase [1][6] - The company sold 23,001 homes in FY2024Q3, a 1% YoY increase, with sales revenue of $8.7 billion [1][6] - As of June 30, 2024, the company had 42,600 homes in inventory, with 26,200 unsold, indicating healthy inventory levels [1][6] Shareholder Returns - In FY2024Q3, the company repurchased 3 million shares for $441.4 million and paid $98.5 million in dividends, returning a total of $540 million to shareholders [1][9] - The company had $459.7 million remaining in its share repurchase authorization as of June 30, 2024, and announced a new $4 billion repurchase plan [1][9] Updated Guidance - The company tightened its FY2024 revenue guidance to $36.8-$37.2 billion and increased its home delivery guidance to 90,000-90,500 homes [12] - For FY2024Q4, the company expects revenue of $10-$10.4 billion, home deliveries of 24,000-24,500, and a gross margin of approximately 24% [12] - The company increased its FY2024 share repurchase guidance from $1.6 billion to $1.8 billion [12]

Financial Performance - Homebuilding revenues increased 6% to $9.2 billion compared to $8.7 billion, with homes closed increasing 5% to 24,155 homes[146] - Consolidated revenues increased 7% to $26.8 billion in the nine months ended June 30, 2024, compared to $25.0 billion in the prior year period[137] - Net income was $3.5 billion in the nine months ended June 30, 2024, compared to $3.3 billion in the prior year period, with diluted earnings per share increasing to $10.43 from $9.39[137] - Home sales gross margin improved to 24.0% compared to 23.3%[146] - Consolidated net income attributable to D.R. Horton increased 7% to $3.5 billion compared to $3.2 billion[162] - Diluted net income per common share increased 11% to $10.43 compared to $9.39[162] - Pre-tax income for the three and nine months ended June 30, 2024, was $1.8 billion and $4.6 billion, respectively, compared to $1.8 billion and $4.3 billion in the prior year periods[229] Home Sales and Orders - Net sales orders increased 1% to 23,001 homes, with the value of net sales orders remaining essentially flat at $8.7 billion[146] - Homes closed increased 10% to 66,043 homes, while the average closing price decreased 1% to $378,200[158] - Net sales orders increased 14% to 67,526 homes, with a value increase of 15% to $25.6 billion[158] - The sales order backlog decreased by 12% year-over-year, totaling 16,792 homes with a value of $6.55 billion as of June 30, 2024[172] - The cancellation rate for sales orders was 18% for both the three and nine months ended June 30, 2024, consistent with the prior year[171] Inventory and Land Management - Homebuilding inventories totaled $20.5 billion, up from $18.2 billion at September 30, 2023[148] - Approximately 26,200 homes in inventory were unsold as of June 30, 2024, compared to 27,000 unsold homes as of September 30, 2023[208] - The company plans to actively manage its inventory of owned land and lots and homes under construction relative to demand in each market[201] - Total land/lots owned and controlled as of June 30, 2024, was 630,200, with 150,900 lots owned and 479,300 lots controlled through purchase contracts[207] Regional Performance - Homebuilding revenues for the Northwest region increased by 10% in Q2 2024 and by 9% for the nine months, with pre-tax income of $121.2 million and $300.0 million respectively[193] - The Southwest region saw homebuilding revenues increase by 16% in Q2 2024 and by 28% for the nine months, with pre-tax income of $209.4 million and $515.3 million respectively[194] - The South Central region experienced a 7% decrease in homebuilding revenues in Q2 2024, with pre-tax income of $368.7 million[196] - The East region reported a 17% increase in homebuilding revenues in Q2 2024, with pre-tax income of $314.9 million[198] Financial Services - Financial services revenues increased 6% to $242.3 million compared to $228.5 million[153] - DHI Mortgage originated 18,807 first-lien loans for D.R. Horton homebuyers in the three months ended June 30, 2024, an increase of 11% from 17,011 in the same period of 2023[218] - The percentage of D.R. Horton homes financed by DHI Mortgage rose to 78% in the three months ended June 30, 2024, up from 74% in the prior year[218] - Total loan origination volume increased by 10% and 15% for the three and nine months ended June 30, 2024, respectively, with mortgage operation revenues rising by 6% to $189.3 million and 15% to $512.4 million[224] Expenses and Margins - Selling, General and Administrative (SG&A) expenses increased by 12% to $656.5 million in Q2 2024 and by 13% to $1.9 billion for the nine months, with SG&A as a percentage of homebuilding revenues at 7.1% and 7.5% respectively[186] - Gross profit from home sales increased to $2.2 billion in Q2 2024, up from $2.0 billion in Q2 2023, with a gross profit margin of 24.0%, an increase of 70 basis points[180] - For the nine months ended June 30, 2024, gross profit from home sales rose to $5.8 billion, compared to $5.2 billion in the prior year, with a gross profit margin of 23.4%, an increase of 50 basis points[181] Debt and Cash Management - At June 30, 2024, the company had outstanding notes payable totaling $5.7 billion, with a debt to total capital ratio of 18.8%[234] - Cash and cash equivalents for the homebuilding segment totaled $2.2 billion at June 30, 2024[237] - In the nine months ended June 30, 2024, net cash provided by operating activities was $228.2 million, a significant decrease from $2.3 billion in the prior year period[257] - Cash used to increase residential land and lots was $2.0 billion in the current year period, compared to $915.0 million in the prior year period[257] Compliance and Legal Matters - The Company is involved in lawsuits and contingencies but believes that liabilities will not materially affect its consolidated financial position or cash flows[288] - The Company received Notices of Violation from the EPA and other agencies related to stormwater compliance, which have been resolved through a Consent Decree issued on April 8, 2024[289] - The total cost of the penalty and the supplemental environmental project related to the Consent Decree is not expected to exceed $1 million[289]

Investment Overview - D.R. Horton, Inc. (NYSE:DHI) is rated as a hold due to unattractive valuation despite positive business outlook driven by high mortgage rates limiting existing home inventory and increasing demand for new homes [1] Business Description - DHI focuses on constructing and selling single-family homes, targeting entry-level and move-up markets, with significant regional contributions from South Central (25%), Southeast (28%), and East (20%) as of 3Q24 [2] 3Q24 Earnings - DHI reported 3Q24 revenue of $9.96 billion, gross profit of $2.67 billion, adjusted EBITDA of $1.83 billion, and operating EPS of $4.10; orders grew by 1%, closings by 5%, and average delivery price by 1% [3] - The conversion ratio improved to 135% compared to 119% in 3Q23, and management repurchased 3 million shares for $441 million during the quarter [3] Growth Outlook - The company is expected to benefit from macro conditions where high interest rates reduce existing home inventories, driving demand towards home builders; management noted solid demand with improving traffic late in the quarter [4] - DHI's focus on lower price points positions it well in the current market where affordability is a concern [5] Margins Outlook - DHI's EBITDA margin is trending upwards to 18.4% in 1Q24, expected to sustain due to solid demand, improved supply chain, and easing raw material prices; lumber prices decreased by 1% sequentially [7] - However, product mix changes, including a 2% decline in home sizes, may negatively impact margins, balancing out the positives [8] Valuation - DHI's revenue is projected to grow in mid-single digits for FY24 and FY25, with EBITDA margin unlikely to see further upsides due to investments in incentives and negative product mix [10] - The stock currently trades at 9x forward EBITDA, at the upper end of its historical range, indicating limited upside potential [10] Conclusion - The hold rating reflects the unattractive valuation despite strong demand outlook and solid execution; the market has priced in near-term positives, and adjustments to the recommendation may occur if valuation becomes more favorable [12]

Core Viewpoint - Momentum investing focuses on following a stock's recent price trends, with the aim of buying high and selling higher, leveraging established price movements for profitable trades [1] Company Overview: D.R. Horton (DHI) - D.R. Horton currently holds a Momentum Style Score of B, indicating a favorable momentum characteristic [1] - The company has a Zacks Rank of 1 (Strong Buy), which is associated with a strong historical performance in the market [2] Performance Metrics - DHI shares have increased by 13.07% over the past week, outperforming the Zacks Building Products - Home Builders industry, which rose by 5.36% during the same period [3] - Over the past month, DHI's price change is 22.09%, compared to the industry's 13.81% [3] - In the last three months, DHI shares have risen by 19.62%, and over the past year, they have increased by 36.26%, while the S&P 500 has moved 11.27% and 22.23%, respectively [3] Trading Volume - DHI's average 20-day trading volume is 2,880,839 shares, which serves as a baseline for price-to-volume analysis [3] Earnings Outlook - In the last two months, 5 earnings estimates for DHI have been revised upwards, while 1 has been revised downwards, leading to an increase in the consensus estimate from $14.32 to $14.39 [4] - For the next fiscal year, there have been 2 upward revisions and 1 downward revision in earnings estimates [4] Conclusion - D.R. Horton is positioned as a 1 (Strong Buy) stock with a Momentum Score of B, making it a potential candidate for near-term investment opportunities [5]

Group 1 - D.R. Horton (DHI) is currently ranked 1 (Strong Buy) in the Zacks Rank system, indicating a strong earnings outlook compared to its peers in the Construction sector [1][2] - Year-to-date, D.R. Horton has returned 14.4%, outperforming the average Construction sector gain of 14% [2] - The Zacks Consensus Estimate for DHI's full-year earnings has increased by 1.1% over the past three months, reflecting improved analyst sentiment [2] Group 2 - D.R. Horton is part of the Building Products - Home Builders industry, which ranks 67 in the Zacks Industry Rank, and has gained an average of 16.6% this year [3] - Despite D.R. Horton's strong performance, it is slightly underperforming its industry average [3] - Another notable stock in the same industry, KB Home (KBH), has returned 28.1% year-to-date and has a Zacks Rank of 2 (Buy) [2][3]

Core Viewpoint - D.R. Horton (DHI) has received a Zacks Rank 1 (Strong Buy) upgrade, indicating a positive earnings outlook that may lead to increased buying pressure and stock price appreciation [1][2]. Earnings Estimates and Revisions - The Zacks Consensus Estimate for D.R. Horton for the fiscal year ending September 2024 is projected at $14.29 per share, reflecting a 3.4% increase from the previous year [5]. - Over the past three months, the consensus estimate for D.R. Horton has risen by 0.5%, indicating a trend of increasing earnings estimates [5]. Zacks Rating System - The Zacks Rank system classifies stocks based on earnings estimate revisions, with D.R. Horton now positioned in the top 5% of Zacks-covered stocks, suggesting potential for near-term stock price increases [4][7]. - Historically, Zacks Rank 1 stocks have generated an average annual return of +25% since 1988, highlighting the effectiveness of the rating system in identifying strong investment opportunities [4]. Market Dynamics - The relationship between earnings estimate revisions and stock price movements is well-established, with institutional investors often driving price changes based on these revisions [3]. - The upgrade of D.R. Horton reflects an improvement in the company's underlying business, which is expected to be recognized by investors through increased stock prices [3].

Earnings and Profitability - Earnings per diluted share increased 5% to $4.10 on net income of $1.4 billion[1] - Homebuilding pre-tax income increased 7% to $1.6 billion with a pre-tax profit margin of 17.0%[8] - Net income for the nine months ended June 30, 2024, was $3,506.2 million, compared to $3,269.7 million for the same period in 2023[26] - Basic net income per common share for the nine months ended June 30, 2024, was $10.50, up from $9.46 for the same period in 2023[26] - Consolidated income before income taxes for Q2 2024 was $1.80 billion, slightly up from $1.78 billion in Q2 2023[29][30] Revenue Growth - Consolidated revenues increased 2% to $10.0 billion[1] - Revenues for the three months ended June 30, 2024, were $9,965.7 million, compared to $9,725.6 million for the same period in 2023[26] - Home sales revenue for Q2 2024 reached $9.23 billion, up from $8.70 billion in Q2 2023, reflecting a 6.1% year-over-year growth[29][30] - Financial services revenue increased to $242.3 million in Q2 2024 from $228.5 million in Q2 2023, a 6% year-over-year growth[29][30] - Consolidated revenues guidance for fiscal 2024 updated to approximately $36.8 billion to $37.2 billion[19] Home Sales and Closings - Homes closed increased 5% to 24,155 homes and 6% in value to $9.2 billion[1] - Net sales orders increased 1% to 23,001 homes and were flat in value at $8.7 billion[1] - Net sales orders for the nine months ended June 2024 totaled 67,526 homes valued at $25.57 billion, up from 59,403 homes valued at $22.27 billion in the same period of 2023[33] - Total homes closed across all regions reached 24,155 units in Q2 2024, up 5.1% from 22,985 units in Q2 2023, with a total value of $9.23 billion, up 6.1% from $8.70 billion[34] - Homes closed in the Northwest region increased to 1,427 units in Q2 2024, up 18% from 1,209 units in Q2 2023, with a total value of $720.7 million, up 10.3% from $653.6 million[34] - Southwest region homes closed rose to 2,673 units in Q2 2024, a 15.4% increase from 2,316 units in Q2 2023, with a total value of $1.31 billion, up 17.3% from $1.12 billion[34] - South Central region homes closed decreased to 6,104 units in Q2 2024, down 5.8% from 6,477 units in Q2 2023, with a total value of $2.01 billion, down 7.4% from $2.17 billion[34] - Southeast region homes closed increased to 6,669 units in Q2 2024, up 2.2% from 6,616 units in Q2 2023, with a total value of $2.42 billion, up 1.3% from $2.38 billion[34] Rental Operations - Rental operations pre-tax income of $64.2 million on $413.7 million of revenues[1] - Rental property sales revenue grew to $413.7 million in Q2 2024, compared to $667.1 million in Q2 2023, indicating a 38% decline[29][30] Share Repurchases and Liquidity - Repurchased 3.0 million shares of common stock for $441.4 million[1] - New share repurchase authorization of $4.0 billion[1] - Consolidated cash balance at June 30, 2024 was $3.0 billion with total liquidity of $5.8 billion[3] - The company's Board of Directors approved a new share repurchase authorization totaling $4.0 billion[22] Cash Flow and Financial Position - Total cash, cash equivalents, and restricted cash decreased to $3,020.0 million as of June 30, 2024, compared to $3,900.1 million as of September 30, 2023[25] - Net cash provided by operating activities for the nine months ended June 30, 2024, was $228.2 million, compared to $2,261.1 million for the same period in 2023[27] - Net cash used in financing activities for the nine months ended June 30, 2024, was $947.2 million, compared to $1,117.5 million for the same period in 2023[27] - Cash provided by operating activities for the nine months ended June 2024 was $228.2 million, a significant decrease from $2.26 billion in the same period of 2023[29][30] Inventory and Land Development - Total inventory increased to $25,536.1 million as of June 30, 2024, up from $22,373.3 million as of September 30, 2023[25] - Inventory and land option charges increased to $14.8 million in Q2 2024 from $10.8 million in Q2 2023, reflecting higher costs in land development[29][30] - Total land/lots owned and controlled in the Southwest region increased to 49,600 in June 2024, up 6.6% from 46,500 in September 2023[39] - South Central region land/lots owned and controlled rose to 146,500 in June 2024, up 37.9% from 106,200 in September 2023[39] - Southeast region land/lots owned and controlled increased to 167,600 in June 2024, up 6.3% from 157,600 in September 2023[39] - Homes in inventory in the East region increased to 8,300 units in June 2024, up 16.9% from 7,100 units in September 2023[40] - Total homes in inventory across all regions reached 42,600 units in June 2024, up 1.4% from 42,000 units in September 2023[40] Regional Performance - The Southeast region contributed the highest home sales value at $2.17 billion in Q2 2024, maintaining a strong market presence[33] - The South Central region recorded the highest number of net sales orders at 17,733 homes for the nine months ended June 2024, up from 15,905 homes in 2023[33] - Consolidated assets increased from $32.58 billion in September 2023 to $35.15 billion in June 2024, driven by growth in homebuilding and rental segments[28] Cost Management - Cost of sales for the three months ended June 30, 2024, was $7,323.7 million, compared to $7,141.8 million for the same period in 2023[26] - Selling, general, and administrative expenses for the three months ended June 30, 2024, were $923.6 million, compared to $852.1 million for the same period in 2023[26]

Core Insights - D.R. Horton, Inc. reported strong third-quarter fiscal 2024 results, with earnings and revenues exceeding Zacks Consensus Estimates, driven by limited supply of affordable homes and favorable housing demand demographics [1][2] Earnings, Revenues & Margin Discussion - Adjusted earnings were $4.10 per share, beating the consensus estimate of $3.80 by 7.9% and increasing 5% from the previous year [2] - Total revenues reached $10 billion, a 2% year-over-year increase, surpassing the consensus mark of $9.68 billion by 2.9% [2] - The consolidated pre-tax profit margin was 18.1% for the quarter [2] Segment Details - Homebuilding revenues were $9.24 billion, up 6% year-over-year, with home sales at $9.23 billion, reflecting a 6.1% increase [3] - Home closings rose 5% to 24,155 homes, while net sales orders increased 1% to 23,001 homes [3] - The value of net orders remained flat at $8.7 billion, with a cancellation rate of 18% [3] - Order backlog decreased by 12% year-over-year to 16,792 homes, with a backlog value of $6.6 billion [3] - Financial Services revenues increased 6% to $242.3 million, while Forestar contributed $318.4 million, down from $368.9 million a year ago [3][4] Balance Sheet Details - Cash and cash equivalents totaled $2.99 billion, down from $3.87 billion at the end of fiscal 2023 [5] - Total homebuilding liquidity was $5.8 billion, with debt at $5.7 billion and a debt to total capital ratio of 18.8% [5] - The trailing 12-month return on equity was 21.5% [5] - The company repurchased 3 million shares for $441.4 million in the fiscal third quarter, with remaining stock repurchase authorization of $459.7 million [6] Updated Fiscal 2024 Views - D.R. Horton expects consolidated revenues between $36.8 billion and $37.2 billion, slightly revised from previous expectations [7] - Homes closed are anticipated to be between 90,000 and 90,500 units [7] - Cash flow from homebuilding operations is projected to be nearly $3 billion, with share repurchases now estimated at approximately $1.8 billion [7]