D.R. HORTON: PRIMED TO CAPITALISE ON HOUSING MARKET’S RECOVERY
Summary
- 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 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.
At the same time homebuilders can’t keep up with this demand, as evidenced in the monthly supply of houses
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)
Source: Company presentation Q42020
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.
Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.