QUOTE AND NEWS
Forbes  Jul 23  Comment 
Wall Street is high on D.R. Horton, expecting it to report earnings that are up 17% from a year ago when it reports its second-quarter earnings on Thursday, July 24, 2014. The consensus estimate is 49 cents per share, up from earnings of 42 cents...
Market Intelligence Center  Jul 23  Comment 
D.R. Horton Inc. (DHI) traded between $23.95 and $24.43 before closing at $24.30 Tuesday and presents some attractive trading opportunities today. MarketIntelligenceCenter.com’s patented algorithms selected a Jan. '15 $22.00 covered call for a...
Benzinga  Jul 17  Comment 
Stocks related to home construction opened sharply lower Thursday on news of a 9.3 percent drop in June housing construction. The U.S. Census Bureau said housing starts in June fell to 893,000 units, from one million units in May. Still, the...
Forbes  Jul 14  Comment 
Shareholders of D.R. Horton Inc. (NYSE: DHI) looking to boost their income beyond the stock's 0.6% annualized dividend yield can sell the January 2016 covered call at the $30 strike and collect the premium based on the $1.60 bid, which annualizes...
Benzinga  Jul 10  Comment 
Analysts at JMP Securities downgraded D.R. Horton (NYSE: DHI) from “market outperform” to “market perform.” D.R. Horton shares have jumped 16.15% the past 52 weeks, while the S&P 500 index has gained 18.82% in the same period. D.R....
TheStreet.com  Jul 9  Comment 
NEW YORK (TheStreet) -- DR Horton shares are up 0.45% to $24.46 on Wednesday after the Mortgage Bankers Association announced that applications for U.S. home mortgages rose 1.9% last week.Loan requests for home purchases also increased 3.7%,...
Market Intelligence Center  Jul 7  Comment 
D.R. Horton Inc. (DHI) was identified by MarketIntelligenceCenter.com’s patented algorithms today after trading between $24.64 and $24.95 on Thursday before closing at $24.82. A diagonal spread using a long position in the Jan. '15 $20.00 call...
TheStreet.com  Jun 30  Comment 
NEW YORK (TheStreet) -- DR Horton shares are up 3.2% to $24.59 on Monday after analysts at Barclays  upped its price target to $34 from $28.The improved valuation stems from a jump in pending home sales data that combats manufacturing data that...
Motley Fool  Jun 20  Comment 
The housing market is picking up and here's one new company that lets you play the upturn like a banker.
MarketWatch  Jun 18  Comment 
Shares of major homes builders cut losses within five minutes after the Federal Reserve's Wednesday afternoon policy announcement. Shares of Lennar were down 1.58% five minutes after the 2 p.m. Eastern announcement, compared with a drop of 2.34%...




 

D.R. Horton (NYSE: DHI) is one the largest homebuilder in the United States with operations in 27 states and 75 metropolitan markets of the United States, primarily under the name of D.R. Horton, America’s Builder.[1] DHI constructs single-family homes, mostly for entry-level and first-time home buyers. DHI also has a small financial services division which provides mortgages and title agency services to homebuyers.

While DHI's national scope can provide it with some protection from regional fluctuations in the U.S. housing market, its focus on middle-income homebuyers makes it particularly exposed to a national housing slump. As a result of a slumping housing market and the exacerbating influence of the subprime lending crisis, the company's revenue and homes closed fell significantly.

Company Overview

Business Financials

In 2009, DHI earned a total of $3.7 billion in total revenues. This was an alarming decline from its 2008 total revenues of $7.7 billion. Despite the decrease in revenues, DHI was able to improve upon its net income situation. Between 2008 and 2009, DHI was able to reduce its net loss from a net loss of $2.6 billion in 2008 to a net loss of $545 million in 2009.[2]

Business Segments

DHI's two primary segments include:

Home Building

DHI builds and sells homes in 27 states and 83 metropolitan markets of the United States. The company's homes generally range in size from 1,000 to 5,000 square feet and in price from $90,000 to $900,000, with an average closing sales price of approximately $259,200. This segment generally accounts for well over 95% of the company's revenues.

Financial Services

DHI provides mortgage banking and title agency services primarily to homebuyers of D.R. Horton homes. After DHI makes a loan, it generally does not hold on to the loan or service it -- it instead sells the loan to other investors. DHI title company provide title insurance, home examination, and closing services, which are all required during the home purchase process.

Key Trends & Forces

Interest Rates

Interest rates have several critical effects on the company. In general, rising rates spell bad news for all homebuilders for several reasons:

  1. As interest rates increase, home owners with floating rate debt or adjustable rate mortgages become more likely to default on their loans and foreclose on their homes. This, in turn, increases the inventory of available homes for sales, lowering prices and increasing options for potential buyers. Also, though the company sells most of the mortgages it originates through its financing segment within 30 days, it assumes a higher default probability on the mortgages is does hold.
  2. As interest rates and/or default rates increase, lenders are more likely to demand greater compensation in the form of higher mortgage rates. When buyer financing is less attractive, purchasing a home becomes less appealing and the company can experience greater difficulty unloading its inventory.
  3. When rates are higher, available and existing financing for the company itself becomes less attractive. Getting favorable terms on any new debt to finance construction is more difficult. Also, the company’s interest expense on its floating rate debt increases, pressuring margins and increasing financial risk. In 2007, DHI had nearly $4B in homebuilding debt and close to $400 million of debt associated with its financial services division.

The U.S. Housing Market Cyclicality

Homebuilding is a highly cyclical business and is often a beneficiary and victim of business cycles. Demand for homes is dependent upon the strength of the job market, growth in gross and per capita GDP, the level of interest rates and the availability of mortgage financing. When growth is strong, interest rates are low, and employment is robust, potential first time homeowners (DHI's target market) and those wishing to relocate can pursue new homes more affordably. Thus, more people buy homes, which drives the volume and pricing at which the company can sell its home inventory.

The subprime crisis and home prices

As mentioned above, home prices and the level of new home construction are driven by macroeconomic variables like GDP growth, interest rates and employment. In this environment, rising housing prices can lead to lax lending standards and, sometimes, exuberance as collateral values rise, which further fuels price increases. As has happened recently, however, home prices across the country can also experience sharp declines when this exuberance catches up to buyers and lenders. Currently, in part because of a cycle fed by the subprime mortgage crisis, in which mortgage borrowers with poor credit histories or little documentation have struggled to meet payments, home prices in many areas have declined. This, in turn, exacerbates default rates since these borrowers cannot refinance mortgages given deterioration of collateral. Homebuilders such as DHI assume the risk of continued price declines and hampered demand. If home prices stay depressed for extended periods, the company may have to write down the value of its properties or sell them off at losses.

Competition

DHI competes against a highly fragmented base of other homebuilders. In most of DHI's markets, it is either the largest or one of the five largest builders. [3] Some of DHI's major competitors include Lennar (LEN), Pulte Homes (PHM), Centex (CTX), and KB Home (KBH).

References

  1. DHI 10-K 2009 Item 1 Pg. 1
  2. DHI 10-K 2009 Item 6 Pg. 23
  3. DHI 10k 2007, Pg. 20
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