D.R. Horton's stock soars as affordable homes are still in short supply

By Tomi Kilgore

Home builder's stock leads the S&P 500's gainers, as earnings beat offsets a miss in new orders

Shares of D.R. Horton Inc. shook off some early weakness to soar into record territory on Thursday after the home builder reported fiscal third-quarter earnings and the value of homes closed that rose above expectations, to offset a miss in the number and value of new homes sold.

The company also trimmed its full-year outlook for revenue, but nudged up its guidance for home closings and approved a new $4 billion stock repurchase program.

"Although inflation and mortgage interest rates remain elevated, the supply of both new and existing homes at affordable price points is still limited, and the demographics supporting housing demand remain favorable," said Chief Executive Paul Romanowski on the post-earnings call with analysts, according to an AlphaSense transcript.

"Home buyer demand during the spring selling season was good, despite continued affordability challenges," he added.

The stock (DHI), which had seen premarket losses of as much as 2.2% after earnings were released, shot up 12.3% in morning trading to climb well above the record close of $164.55 reached on March 28.

The stock, which the day's top gainer in the S&P 500 index SPX, was headed for the biggest one-day gain since it ran up 14.7% on April 6, 2020.

The company reported net income for the quarter to June 30 that rose to $1.35 billion, or $4.10 a share, from $1.34 billion, or $3.90 a share, in the same period a year ago. That beat the FactSet consensus for earnings per share of $3.75.

Revenue grew 2.5% to $9.73 billion, above the FactSet consensus of $9.61 billion.

Homes closed increased 5.1% to 24,155 while the value of homes closed was up 6.1% to $9.23 billion, to imply an average price of $382,165 per home closed. The FactSet consensus was for homes closed of 22,256 and an average closing price of $376,340.

New sales orders edged up 0.5% to 23,001 and the value of sales orders was flat at $8.7 billion. Those were well below the FactSet consensus for new orders of 24,738 and for new-order value of $9.56 billion.

Rental operations revenue dropped 38% to $413.7 million, but beat expectations of $368.1 million.

For the fourth quarter, the company expects revenue of $10 billion to $10.4 billion and homes closed to be in the range of 24,000 to 25,000, while the current FactSet consensus are for revenue of $10.5 billion and homes closed of 24,165.

For fiscal 2024, the company revised its guidance range for revenue to $36.8 billion to $37.2 billion from $36.7 billion to $37.7 billion, with the midpoint of the ranges falling to $37 billion from $37.2 billion.

The outlook for homes closed was updated to 90,000 to 90,500 from 89,000 to 91,000, which raised the midpoint of the guidance to 90,250 from 90,000.

The company said it spent $441.4 million on share repurchases during the quarter, which left $459.7 million in repurchase authorization as of June 30 under the previous program.

On Thursday, the company said it replaced that program with a new $4 billion repurchase program, with no expiration date.

The new program represents about 7% of D.R. Horton's market capitalization of $58.27 billion at current stock prices.

The stock has rallied 16.4% year to date, while the iShares U.S. Home Construction ETF ITB has climbed 15.3% and the S&P 500 index has advanced 17.3%.

-Tomi Kilgore

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07-18-24 1102ET

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