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Dec. 17, 2020 8:15 AM ETD.R. Horton, Inc. (DHI)
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.


  • The U.S. Fed expects to keep the rates near zero through 2023, making mortgages more accessible.
  • The housing market is already experiencing a robust recovery from March 2020 lows.
  • DHI has a track record of market share expansion, making it a good play on growing housing demand.
  • The pandemic has forced many people in the country to move, creating new housing demand.

Company Description

DHI is one of the largest homebuilding companies in the US. It constructs and sells of homes in 29 states and 88 markets under the names of D.R. Horton, America's Builder, Express Homes, Emerald Homes, and Freedom Homes. The company also provides mortgage financing services.

Potential Growth Drivers

Interest rates in the US are expected to remain exceptionally low well into 2023 to support economic recovery from the pandemic. This will naturally make mortgages more affordable, driving demand for new homes. Furthermore, the pandemic is likely to force many people to move, strengthening demand for new homes.

The pandemic is forcing a lot of people to move, creating new demand for housingSource: Bloomberg

The U.S. housing demand has already experienced dramatic growth in third quarter and is expected to continue to recover in fourth quarter, albeit at a slower pace.

New home sales were up dramatically in third quarterSource: fred.stlouisfed.org

At the same time homebuilders can’t keep up with this demand, as evidenced in the monthly supply of houses

Supply of new houses can't keep up with demand Source: fred.stlouisfed.org

Meanwhile, D.R. Horton is well positioned to take advantage of this surge in demand with good levels of houses in inventory and a track record in increasing their market share (see charts below)

D.R. Horton has good levels of inventory available for sale Source: Company presentation Q42020

DHI has a great track record at expanding its market share Source: Company presentation Q42020

Finally, the company’s stock appears undervalued in the short-term: the consensus 24-month forward Earnings-per-share estimates (green line on chart) have been growing since July, far outpacing the stock price. This created a situation in which the stock’s 24-month forward Price-to-Earnings (yellow line on chart) is at lowest levels since 2018.

The stock appears cheap on a 24-month forward P/E measureSource: Bloomberg

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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