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Housing Boom in US Draws Further Interest to D.R. Horton (NYSE:DHI)

Housing Boom in US Draws Further Interest to D.R. Horton (NYSE:DHI)

There's been no shortage of gains in the work-at-home sector, as evidenced by stocks like Zoom (NASDAQ:ZM), that have seen terrific gains over the last few months, one fact keeps coming back to roost. In a field where so much of life is lived at home, it's a good idea to have a home that can support all that whatever-at-home. That's given homebuilders a big new run in the market, and recently, D.R. Horton (NYSE:DHI) got an upgrade of its own thanks to its position in the housing market.

One Big New Upgrade

The upgrade in question came from RBC Capital Markets, whose analyst, Mike Dahl, pointed out several key points that make D.R. Horton a very attractive homebuilder. First, of course, is the part we already knew about: strong demand in the housing sector. With the combination of houses and the internet playing a greater role in our lives than pretty much any time since the 1800s, having the kind of house that can accommodate such demands is more crucial than ever. Thus, those who find shortcomings in their current house are going ahead with new building plans.

Second is D.R. Horton's ability to take advantage of that demand. Thankfully, based on the reports from RBC, D.R. Horton is in a good position to do just that, as it can effectively control issues of land and labor thanks to its primarily regional focus. D.R. Horton is a very big deal in Texas, where a big deal is a huge deal by most other states' standards. Just one community in North Texas, the Silverado community, was ranked third in North Texas in terms of home sales, but 28th for the entire US.

With entry-level demand also on the rise and a comparative lack of affordable housing on hand in Texas, the end result should be a boost to D.R. Horton's fortunes. RBC not only hiked its outlook, but also its price target, going to $80 per share from the previous estimate of $75.

Not a Maverick Stance

RBC's improved outlook for D.R. Horton mirrors that of the larger analyst community with an almost shocking precision, based on our latest research. The company not only enjoys a “buy” rating right now, but also has enjoyed that rating for the last six months. Ratios comprising that consensus have actually changed quite a bit, but always to the “buy” side. Six months ago, the company had one “sell” rating, five “hold” 11 “buy” and one “strong buy” to its credit. Today, the “sell” rating has departed, there are four “hold”, 16 “buy” and one “strong buy.” That “sell” rating has been part of the mix for most of the last six months, however; it was there as recently as a month ago.

As for the price target, that's been on the rise too. In fact, RBC's price target for the company is now just $0.09 short of the consensus price target of $80.09. The price target has been rising fairly close to the company's overall upward trajectory over the last six months as well; six months ago, the price target issued then, $55.12, represented roughly a 12.4% upside. Today's price target is a 16.6% upside at today's share prices, suggesting the price targets are tracking reasonably well.

An Easy Sale?

D.R. Horton has indeed had a good run of things so far. It continually shows up in some of the biggest sales around, and represents a whole lot of firepower in the housing market. There are even some signs of further expansion; the company just paid over $14 million for properties in Jupiter and Florida City a couple of weeks ago, planning to put new housing projects in. With some word emerging that D.R. Horton is also looking to change its land acquisition strategy going forward—focusing more on options rather than purchasing, which should help drive both return on investment as well as overall cash flow—that should only help as well.

One major question remains, though: how much longer can this housing boom last? There comes a point where everyone who wants a new house has one, and with so many houses vacated to pick up whole new ones better suited to a nigh-constant stay-at-home lifestyle, well, that might put a limiting factor on future home sales. Throw in the likely economic changes to come with a new presidential administration and that may do further damage. There are even some signs that the everything-at-home lifestyle is starting to wear off; several entire business sectors are projecting gains as people stop hiding in their houses and start eating out, going to movies, and doing similar things again.

Still, for now, D.R. Horton is likely to continue being a titan in the homebuilding market. How much longer that market can last is anyone's guess, so get in while the getting's good.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
D.R. Horton (DHI)
4.5835 of 5 stars
$144.62+1.3%0.83%9.84Moderate Buy$157.82
Zoom Video Communications (ZM)
4.3749 of 5 stars
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