D.R. Horton, the largest public home builder in America, is set to release its latest earnings report on Thursday. Industry experts speculate that the company’s commentary could have a significant impact on other stocks in the sector, making it an event worth paying attention to.
According to FactSet, D.R. Horton is projected to announce earnings of $2.83 per share and revenue of approximately $8.3 billion for its fiscal third quarter ended on June 30. In the same period last year, the company reported earnings of $4.67 per share on sales totaling around $8.8 billion.
It’s important to note that the substantial difference between this quarter’s estimated earnings and last year’s results shouldn’t come as a surprise. The surge in mortgage rates since late 2022 has slowed down the previously booming housing market during the pandemic.
Despite this, investors are likely more interested in recent trends in the new homes market rather than year-over-year comparisons. Builder stocks have experienced a boost in recent months due to increased interest in new homes. With high mortgage rates deterring some potential sellers from entering the market, housing supply has been limited.
Investors will be closely examining D.R. Horton’s results for any indications of this trend continuing.
According to a report by Oppenheimer, buy-side investors already anticipate an earnings beat from D.R. Horton. The analysts highlight that optimistic commentary on demand, alongside strong financial performance, could drive stocks in the sector higher.
As we await D.R. Horton’s earnings report, the industry as a whole braces for potential market-moving revelations.
Imbalance Between New and Existing Homes Persists
Recently, there has been a noticeable imbalance in the housing market between new and existing homes. Builder sentiment, as measured by the National Association of Home Builders, has been steadily increasing for seven consecutive months in July. The limited supply of existing homes has compelled some buyers to turn towards newly built homes, resulting in a surge in new home sales in May. Conversely, sales of existing homes continue to fall behind.
During an earnings call last month, executives at Lennar, a prominent home builder, addressed this ongoing trend. Lennar’s Executive Chairman, Stuart Miller, remarked, “Bottom line: supply is short, demand is returning to affordable offerings, and builders will need to produce more homes to fill the void.”
Economists predict that this imbalance persisted into the last month as well, according to consensus estimates. FactSet consensus estimates indicate that sales of previously owned homes (existing-home sales and pending home sales) are expected to be around 18% and 15% lower than the levels seen a year ago in June. On the other hand, sales of new homes are projected to reach a seasonally-adjusted annual rate of 722,000 in June, reflecting a significant year-over-year increase of 28%.
This prevailing market situation is particularly favorable for builders, with D.R. Horton being singled out by Oppenheimer analysts. The analysts noted that the lack of resale inventory provides a beneficial tailwind for D.R. Horton, especially as it already has the necessary inventory to accommodate buyers before the start of the fall academic term. Oppenheimer rates the company’s shares as Perform.
In conclusion, it is evident that the current demand for housing leans heavily towards newly constructed homes due to the scarcity of existing options. Builders must adapt and increase their home production to address this supply-demand disparity effectively.
