DR Horton (DHI) Who the hell is DR Horton? D.R. Horton, Inc. operates as a homebuilding company in the United States. The company operates in two segments, Homebuilding and Financial Services. The Homebuilding segment engages in the acquisition and development of land for residential purposes, and construction and sale of residential homes. This segment builds traditional single-family detached homes and attached homes, such as town homes, duplexes, triplexes, and condominiums. It markets and sells its homes through commissioned employees and independent real estate brokers. The company constructs and sells homes in 27 states and 83 metropolitan markets in the United States under the name D.R. Horton, America's Builder'. D.R. Horton markets and sells homes through commissioned employees and independent real estate brokers. The Financial Services segment offers mortgage banking and title agency services to homebuyers. This segment also provides title insurance policies, examination, and closing services primarily to purchasers of homes. It originates, packages, and sells mortgage loans and their servicing rights to third- party investors, after origination on a non-recourse or limited recourse basis. The company was founded in 1978 and is based in Fort Worth, Texas. Key Metrics • Price - 13.41 • P/E – N/A (Negative Earnings) • EPS - -2.27 • Dividend – 4.5% • 52 Week Range - 10.15 – 31.13 • Market Cap – 4.22 Billion • Beta – 2.17 • Inst. Owned – 94% • Price/Book - 0.76 • Total Debt – 4.38 Billion Key Metrics Continued Quarterly Annual (Sep '07) (2007) Net Profit Margin -1.58% -6.31% Operating Margin -3.16% -8.42% EBITD Margin - -7.64% Return on Average Assets -1.67% -5.39% Return on Average Equity -3.57% -11.84% Employees 6,231 - Income Statement & Balance Sheet Quarterly Annual 22% dec. in Annual (Sep '07) (2007) sales vol. & (2006) Income Statement 5% dec in price Total Revenue 3,172.40 11,296.50 15,051.30 Gross Profit 265.90 811.40 3,633.00 Operating Income -100.20 -951.20 1,987.10 Net Income -50.10 -712.50 1,233.30 1.3 Bil. In Inventory Impairment and Land Option Write-offs Balance Sheet Total Assets 11,570.40 11,570.40 14,863.20 Total Liabilities 5,983.50 5,983.50 8,410.30 Total Equity 5,586.90 5,586.90 6,452.90 DIRECT COMPETITOR COMPARISON - 2006 DHI CTX LEN PHM Industry Market Cap: 4.22B 3.02B 2.71B 2.62B 340.33M Employ-ees: 6,231 11,418 12,605 12,400 1.02K Qtrly Rev Growth (yoy): -35.00% -21.10% -44.00% -30.60% 0.00% Revenue (ttm): 11.30B 10.55B 12.28B 10.75B 1.28B Gross Margin (ttm): 17.72% -5.63% 14.05% 0.26% 17.03% EBITDA (ttm): 924.90M -702.76M 48.37M 117.45M 84.19M Oper Margins (ttm): 7.62% -7.19% -0.01% 0.26% -0.92% Net Income (ttm): -712.50M -1.04B -885.04M -1.39B -44.46M EPS (ttm): -2.268 -6.616 -5.620 -5.517 -1.05 P/E (ttm): N/A N/A N/A N/A 8.04 PEG (5 yr expected): N/A N/A N/A N/A 0.89 P/S (ttm): 0.37 0.29 0.22 0.24 0.25 Positives • DR Horton is the largest homebuilder in the U.S., meaning they should be able to weather the current market conditions, and possibly acquire smaller companies that can’t survive. • Compared to its competitors DR Horton is performing the best in terms of gross and operating margins. Also, number of employees as a % of revenue is significantly lower than others. These lower personnel costs will help against the downturn. • Government is starting and should continue to bring relief to companies that have been affected by the housing market. • Price is near its 52 week low. • Price to Book Value is below 1 Negatives • Many risks to this stock, hence a beta of 2.17 • DR Horton has a lot of debt, meaning much of there cash flow is going to be used to pay off loans, and they might have issues with getting capital in the future. • Housing demand and consumer confidence have continued to fall, thus lowering the price of new homes, and making them more difficult to sell. • The record amount of foreclosures continues to put more homes out on the market, thus driving down the price of real estate. • There is no clear indicators of when the housing market will rebound. Summary The housing market is eventually going to rebound, the question is when. While this might not be the right time to buy a homebuilding stock, it is a good long term investment, and it’s important that we keep an eye on this industry. Remember that while expectations are very bad, this is already incorporated into the stock price, giving it over a 60% discount off its 52 week high. While it is not the best strategy to find the bottoms, if we look to hold onto this over the next 5 years, there is much more upside than downside in this stock.
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