D.R. Horton, Inc. (DHI): A Bull Case Theory

Group 1: Company Overview - D.R. Horton, Inc. (DHI) is the largest homebuilder in the U.S., trading at a forward P/E of 9–10x compared to the S&P 500's ~20x, indicating significant undervaluation in growth potential [2][4] - In fiscal 2024, DHI reported earnings per share (EPS) exceeding $14 on revenues over $35 billion, with a return on equity (ROE) consistently above 20% [2] - The company's balance sheet is strong, with a net debt/EBITDA ratio below 1x, showcasing a conservative financial position for a cyclical business [2] Group 2: Market Conditions and Opportunities - Elevated mortgage rates have depressed housing affordability in 2023–24, but this is expected to improve as inflation decreases and the Federal Reserve may cut rates in 2025 [3] - A potential drop in mortgage rates from ~7.5% to the 5–6% range could unleash pent-up demand from millions of sidelined buyers [3] - The U.S. housing market is structurally undersupplied by an estimated 3–5 million homes, particularly in the entry-level segment, creating a favorable environment for DHI [3] Group 3: Valuation and Growth Potential - DHI's average selling price is approximately $385K, positioning the company to benefit from a recovery in demand as mortgage rates decline [4] - Projected double-digit earnings and sales growth are achievable, with a potential re-rating to a 12–14x multiple on projected $15 EPS, suggesting a stock value between $180–210 compared to the current ~$140 [4] - The combination of discounted valuation, structural demand tailwinds, and rate-driven catalysts presents an attractive risk/reward profile for investors [4] Group 4: Recent Performance and Sentiment - DHI's stock price has appreciated approximately 44.5% since a previous bullish thesis was published, reflecting resilient fundamentals [5] - The company is not among the 30 most popular stocks among hedge funds, with 67 hedge fund portfolios holding DHI at the end of the first quarter, up from 60 in the previous quarter [6]