Raymond James Upgrades Homebuilder D.R. Horton After ‘Strong’ Q3

Construction company D.R. Horton, Inc. (NYSE: DHI)’s upside return on invested capital is enough to warrant a new valuation approach, according to Raymond James. 

The Analyst

Raymond James analyst Buck Horne upgraded D.R. Horton from Outperform to Strong Buy with a price target maintained at $53.

The Thesis

The upgrade is driven by strong results in the company’s July 26 third-quarter earnings report, Horne said in the upgrade note. (See the analyst’s track record here.) 

“With another round of upward estimate revisions, we have even greater confidence in DHI’s ability to sustain its double-digit revenue pace, preserve recent margin gains and achieve its 2020 cash flow target of $1.25 billion,” the analyst said. 

DHI should be considered in the same valuation context as peer NVR, Inc. (NYSE: NVR), Horne said. 

DHI reported earnings per share that exceeded the consensus; a 21.9-percent gross margin; a boost in home deliveries and $14 million of land sale gains. The company’s increased focus on production efficiency and financial flexibility made DHI’s pre-tax margin the most efficient it has been since 2006, the analyst said. 

Raymond James raised its 2018 and 2019 estimates for DHI in light of the company’s third-quarter upside and new guidance.

Price Action

DHI shares were trading up 0.21 percent at $43.79 at the time of publication Wednesday.

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