QUOTE AND NEWS
Forbes  Jan 15  Comment 
Looking at the sectors faring worst as of midday Thursday, shares of Services companies are underperforming other sectors, showing a 1.2% loss. Within that group, Best Buy (NYSE: BBY) and D.R. Horton (NYSE: DHI) are two of the day's laggards,...
TheStreet.com  Jan 15  Comment 
NEW YORK (TheStreet) -- Shares of D.R. Horton are slipping, down 6.25% to $23.57 in midday trading Thursday, after homebuilding peer Lennar issued a warning of lower gross margins in fiscal 2015 as it reported its fourth quarter earnings....
TheStreet.com  Jan 14  Comment 
NEW YORK (TheStreet) -- DR Horton shares are showing volatility in afternoon trading today, starting the day down, but up 0.12% to $24.85 after 3 p.m. as the stock recovers from yesterday's dip. DR Horton and other homebuilders took a hit in...
TheStreet.com  Jan 13  Comment 
NEW YORK (TheStreet) -- Shares of home builder DR Horton  fell 4.98% to $24.78 in afternoon trading Tuesday after peer company KB Home  said on its earnings call that it would not reach its 2015 housing margin goal. KB Homes and DR...
Market Intelligence Center  Jan 9  Comment 
After Thursday’s trading in D.R. Horton Inc. (DHI) MarketIntelligenceCenter.com's patented algorithms uncovered a trade that offers a 4.44% return or 12.86% on an annualized basis (for comparison purposes only), while providing 11.38% downside...
Benzinga  Jan 8  Comment 
Home building stocks have had a solid week, with the SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB) up over 4 percent since Tuesday. D.R. Horton, Inc. (NYSE: DHI) was one of the biggest gainers, along with PulteGroup, Inc. (NYSE: PHM) and KB Home...
TheStreet.com  Jan 8  Comment 
NEW YORK (TheStreet) -- Shares of D.R, Horton Inc. are higher by 1.97% to $25.85 in mid-morning trading on Thursday, as homebuilder stocks continue to rise following Wednesday's Bloomberg report suggesting that President Obama will announce...
TheStreet.com  Jan 7  Comment 
NEW YORK (TheStreet) -- Shares of home builder D.R. Horton  rose 5.18% to $25.36 in early afternoon trading Monday amid a report that President Barack Obama would announce a 50 basis point cut in Federal Housing Administration premiums at an...
Market Intelligence Center  Dec 16  Comment 
After Monday’s trading in D.R. Horton Inc. (DHI) the option-trade picking algorithms that power MarketIntelligenceCenter.com's Artificial Intelligence Center uncovered a trade that offers a 5.36% return, or 13.05% annualized (for comparison...




 

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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