On Tuesday, Keefe, Bruyette & Woods adjusted their price target on shares of D.R. Horton (NYSE:DHI), a major home construction company, increasing it to $178.00 from the previous target of $172.00. The firm has also reiterated its Outperform rating on the stock.
The adjustment comes in the wake of D.R. Horton's post-fiscal second-quarter earnings, which prompted the firm to revise their second half of 2024 estimates downward by 6% due to expectations of slightly lower margins in the near term. Conversely, the firm increased their 2025 estimates by 2%, factoring in slightly higher deliveries and margins.
Keefe, Bruyette & Woods forecasts delivery growth for D.R. Horton ranging from 5% to 9% for the years 2024 to 2025. The expected average gross margins are projected to be between 23.0% and 23.2%. These figures compare to a gross margin of 23.5% in 2023 and a notably higher margin of 28.7% in 2022, while aligning with the long-run average of 20-21%.
The firm's stance on the housing market is described as a "Sideways" thesis, which is supported by the current low resale inventory levels and the observation that more than 90% of home mortgage borrowers have rates below 6%. Additionally, the firm finds the valuation of D.R. Horton attractive at 1.7 times forward book value, leading to the decision to adjust the price target while maintaining the Outperform rating.
InvestingPro Insights
Recent data from InvestingPro complements Keefe, Bruyette & Woods' analysis of D.R. Horton (NYSE:DHI) and provides additional context for investors. The company boasts a robust market capitalization of $50.08B and operates with a moderate level of debt, which is a positive sign for stability.
With a P/E ratio of 10.17 and a slight adjustment to 10.01 over the last twelve months as of Q2 2024, D.R. Horton's valuation is in line with industry standards, reflecting a balance between its earnings and stock price.
InvestingPro Tips highlight that D.R. Horton is not only a prominent player in the Household Durables industry but has also demonstrated a commitment to shareholder returns by raising its dividend for 10 consecutive years, with a notable dividend growth of 20.0% over the last twelve months.
Moreover, the company's stock has experienced a large price uptick of 25.65% over the last six months, which may interest investors looking for growth potential. For those considering a deeper dive into D.R. Horton's financial health, it is noteworthy that the company has maintained profitability over the last twelve months and analysts predict it will remain profitable this year.
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