D.R. Horton Inc

D.R. Horton (DHI) is the largest homebuilder in the country, holding around a 10% market share with significant scale advantages in a fragmented industry. The company has a strong position in entry-level homes and operates with speculative inventory, allowing it to reduce unit costs and pass savings to homebuyers. DHI's management has strategically pivoted the balance sheet to use less capital-intensive methods for sourcing buildable lots, enhancing returns on investments. The stock rose sharply this quarter due to earnings that exceeded analyst expectations, and management's aggressive share repurchase program further supports its value.

D.R. Horton (DHI) has been a top performer for the Smead Value Fund, benefiting from the Federal Reserve’s rate cuts and resilient consumer spending. The homebuilding sector, including D.R. Horton, is positioned to gain from the current economic environment, which is characterized by a building rush that is a speculative bet on technology improving and transforming the economy. The Fund continues to hold D.R. Horton due to its strong market position and the potential for long-term growth.

We believe D.R. Horton (DHI) is well-positioned in the homebuilding sector, with an average selling price of ~$350,000 and an average building cost of ~$260,000, resulting in a 25% gross margin. The company can easily pass on price increases of $10,000-$20,000 to consumers. As a low-cost producer with scale advantages, D.R. Horton, along with peers like Lennar and NVR, can choose to sacrifice some gross margin to gain market share. The current challenging environment is favorable for large-scale, wide-moat homebuilders like D.R. Horton, as they will benefit from structural-demographic demand for new homes and realize operating leverage through their scale.

We believe D.R. Horton (DHI) is well-positioned in the homebuilding market, with an average selling price of ~$350,000 and a construction cost of ~$260,000, resulting in a 25% gross margin. The company can easily pass on price increases of $10,000-$20,000 to consumers. As a low-cost producer with scale advantages, D.R. Horton, along with other large homebuilders, can choose to reduce gross margins to gain market share. The current challenging environment is favorable for large-scale, wide-moat homebuilders like D.R. Horton in the long run.