D.R. Horton,
America’s largest public home builder, will report earnings before the market open Thursday, and investors in the overall sector should get ready for some action.
The company’s commentary could be a catalyst for other stocks in the industry, Oppenheimer analysts predicted this week.
D.R. Horton is expected to report earnings of $2.83 a share on revenue of about $8.3 billion for its fiscal third quarter ended June 30, according to FactSet. In the same period in 2022, the company reported earnings of $4.67 a share on sales of about $8.8 billion.
The dramatic difference between this quarter’s estimated earnings and the year-ago period’s results isn’t necessarily a surprise. The rapid rise in mortgage rates’ since late 2022 has put a damper on the previously-frenzied pandemic housing market.
Investors, however, will likely be more interested in signs of recent strength in the market for new homes than year-over-year comparisons. Builder stocks in recent months have gotten a boost from increased interest in new homes as high mortgage rates have kept some prospective sellers in place, limiting supply.
Investors might look to D.R. Horton’s results for signs of the trend’s continuation.
Buy-side investors already expect an earnings beat, Oppenheimer’s Tyler Batory and Jonathan Jenkins wrote in a July 17 report. “We still think a clean beat and optimistic commentary on demand is a catalyst to move stocks in the sector higher,” they added.
The imbalance between new and existing homes has shown up in a raft of recent data. Builder sentiment measured by the National Association of Home Builders increased for the seventh straight month in July as a low supply of existing-homes pushed some buyers to the market for newly built homes. New home sales in May jumped, while sales of existing homes continued to lag.
Executives at
Lennar,
a large home builder, discussed this dynamic last month during an earnings call after reporting May quarter earnings.
“Bottom line: supply is short, demand is returning to affordable offerings and builders will need to produce more homes to fill the void,” Lennar Executive Chairman Stuart Miller said during the call.
Economists expect that this imbalance continued into last month, consensus estimates show. Two National Association of Realtors measures of the market for previously owned homes—existing-home sales and pending home sales—are expected to be roughly 18% and 15% lower than year-ago levels, respectively, in June, according to FactSet consensus estimates. Sales of new homes, meanwhile, are expected at a seasonally-adjusted annual rate of 722,000 in June—a year-over-year increase of 28%.
This backdrop is good news for builders, and D.R. Horton in particular, the Oppenheimer analysts wrote.
“The lack of resale inventory is an especially attractive tailwind for a spec builder like DHI, given that it has the inventory for buyers to move before school starts in the fall,” they said. Oppenheimer rates the company’s shares Perform.
Write to Shaina Mishkin at [email protected]
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