the better DR Hortons (NYSE: DHI) Q2 results and outlook, the home building industry is headed for a cliff that points to a long-term sales slowdown. Supply/demand imbalances aside, inflation and rising interest rates hurt the market; The quarterly strength is primarily due to a decline in mortgage rates that may not last. The FOMC is is expected to increase by another 25 basis points this year, and there is no definitive evidence of inflation slowing.
with Oil prices are rising Again, investors should expect inflation to pick up again and the FOMC to raise interest rates above the current 500 to 525 basis point target. Even if inflation does not pick up again, the FOMC should not be expected to cut rates significantly for some time. The last time they stepped back on the throttle, the economy relaxed and inflation rose. Homebuilders aren’t going down, but investors shouldn’t expect the Q2 strength to last forever. Backlogs are decreasing, and that now allows for strength.
DR Horton pops in on results and guidance
DR Horton had it A great quarter Delivered 19,664 homes worth $7.4 billion. That was compounded by financing activities and sales of rental units that added about $0.25 billion to the top line. Revenue fell just 0.4% from last year, beating consensus by 2200 basis points. The outperformance is surprisingly big and the reason for the bullishness, but the details in the report gloss over the news.
The company’s net new orders rose sharply sequentially with a pullback in house prices but still down 5% from last year. A gradual improvement helped net new orders in the cancellation rate, but cancellations increased compared to last year. The strength in the order helped offset the company’s deliveries and increase the backlog respectively, but once again, the YOY comparison is not favorable. The backlog is 43% lower than last year and can be expected to continue to decrease given the pace of construction.
Guidance is good but suggests the backlog will continue to shrink. The new guidance assumes revenue of $31.5 billion at the low end of the range compared to consensus revenue of $28.46 billion. That includes the $1.49 billion in outperformance posted in Q2, leaving room for Q3 and Q4 strength. The question that needs to be answered is what the Q3 and Q4 order position looks like and how that will affect the revenue and earnings outlook in 2024.
Analysts are capping gains for DHI stock
This Analysts are catching on DHI is a stock, but it is also a capping gain. MarketBeat has not picked up any new commentary, and the old ones assume that the stock is already at fair value. The most recent included price target cuts and downgrades, with sentiment trending lower and the consensus price target flat at $98.35. It is below the all-time high, Provides resistance In post-release trading action.
The value is attractive, but the dividend is not. Shares yield about 1.0%, compounded by share repurchases. The Q2 buyback reached about 4% of the market cap, but investors shouldn’t expect the company to chase its share price much further. More likely, DHI will buy back shares on price pullbacks and corrections. The weekly chart looks good, but the daily chart is different. The price shows clear resistance at the pop all-time high and opens the possibility of a close before a new all-time high is set and sustained.
