Despite a daily loss of 3.56% and a 3-month loss of 4.13%, D.R. Horton Inc (DHI, Financial) reported an impressive Earnings Per Share (EPS) (EPS) of 14.06. This raises the question: is D.R. Horton's stock modestly undervalued? This article aims to provide a comprehensive analysis of D.R. Horton's valuation, offering valuable insights for potential investors. Read on for an in-depth examination of the company's financial performance, intrinsic value, and future prospects.
A Snapshot of D.R. Horton Inc (DHI, Financial)
D.R. Horton is a leading homebuilder in the United States, with operations spanning 110 markets across 33 states. The company primarily constructs single-family detached homes, catering to a broad customer base, including entry-level, move-up, luxury buyers, and active adults. D.R. Horton also provides mortgage financing and title agency services through its financial services segment. Headquartered in Arlington, Texas, the company manages six regional segments across the United States.
As of September 21, 2023, D.R. Horton's stock is priced at $109.17, with a market capitalization of $36.90 billion. However, the company's estimated fair value, according to GuruFocus's proprietary valuation method, stands at $122.31. This discrepancy suggests that D.R. Horton's stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value.
If a stock's price significantly exceeds the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. Therefore, the GF Value Line serves as a reliable benchmark for investors seeking to understand a stock's fair trading value.
According to our calculations, D.R. Horton's stock appears to be modestly undervalued, suggesting that its long-term return is likely to outpace its business growth.
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D.R. Horton's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to thoroughly assess a company's financial strength before investing in its stock. A good starting point is examining the company's cash-to-debt ratio and interest coverage.
D.R. Horton boasts a cash-to-debt ratio of 0.55, outperforming 50.94% of 106 companies in the Homebuilding & Construction industry. GuruFocus ranks D.R. Horton's overall financial strength at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that consistently generate profits over the long term offer lower risk to investors. D.R. Horton has been profitable for ten of the past ten years. Over the past twelve months, the company reported a revenue of $34.60 billion and an Earnings Per Share (EPS) of $14.06. Its operating margin is 17.95%, ranking better than 83.49% of 109 companies in the Homebuilding & Construction industry. Overall, D.R. Horton's profitability is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. D.R. Horton's 3-year average revenue growth rate is better than 87.13% of 101 companies in the Homebuilding & Construction industry. The company's 3-year average EBITDA growth rate is 56.8%, ranking better than 87.23% of 94 companies in the industry. This strong growth performance suggests a promising future for D.R. Horton.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) provides another perspective on its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. Over the past 12 months, D.R. Horton's ROIC was 18.87, and its WACC was 10.34, indicating a healthy profitability.
Conclusion
In summary, D.R. Horton appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 87.23% of 94 companies in the Homebuilding & Construction industry. To learn more about D.R. Horton's stock, you can check out its 30-Year Financials here.
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