Company Overview - D.R. Horton, Inc. (NYSE:DHI) is one of the largest homebuilders in the United States, founded in 1978 and headquartered in Arlington, Texas [4] Financial Performance - For Q1 2026, D.R. Horton projected consolidated revenues between $7.3 billion and $7.8 billion, with homebuilding closings expected to be between 19,700 and 20,200 units [3] - The company anticipates home-sales gross margins of 19.0% to 19.5% and a consolidated pretax profit margin of 10.6% to 11.1% [3] - D.R. Horton plans approximately $2.5 billion in share repurchases and about $500 million in dividends, indicating a commitment to returning value to shareholders [3] Market Outlook - Keefe Bruyette lowered the price target for D.R. Horton to $163 from $168, maintaining a Market Perform rating, reflecting a cautious outlook for the homebuilding sector due to affordability pressures and elevated incentives [1] - Despite the challenges, the company is well-positioned to navigate near-term market difficulties and is expected to benefit from a recovery in housing demand over the longer term [4]

Group 1 - A proposal for "Trump homes" could lead to the construction of hundreds of thousands of new homes as part of a rent-to-own program [1] - Homebuilder stocks, including Lennar, Taylor Morrison, KB Home, PulteGroup, and D.R. Horton, experienced gains following reports of the Trump administration's consideration of a housing affordability initiative [1] - Lennar's shares surged over 5% in recent trading, building on a 3% increase from the previous day [1] Group 2 - The Trump administration is exploring various proposals related to housing affordability, including methods to lower mortgage rates and alter typical mortgage structures [1] - One proposal suggests that homebuilders could construct entry-level "Trump homes" backed by private investors, allowing renters to count the first three years of rent payments toward a down payment [1] - Details regarding the potential involvement of federally-backed mortgages remain unclear [1]

Core Thesis - D.R. Horton, Inc. (DHI) presents a bullish investment case driven by the anticipated return of lower interest rates, which would enhance homeownership affordability for many Americans [2][4]. Company Overview - DHI operates as a homebuilding company across various regions in the United States, making it the largest homebuilder in the country with significant market share among first-time homebuyers [2][3]. Market Demand - A large pool of Millennials, who have delayed home purchases due to high prices and tight credit, represents significant latent demand that could drive a housing market rebound once conditions normalize [3][4]. Financial Position - DHI has a conservative financial profile, with a debt-to-EBITDA ratio near 0.5, which enhances its resilience during economic cycles [4]. - The company is projecting 86,000–88,000 homes in the upcoming fiscal year, indicating stability in new construction volumes [4]. Valuation and Returns - The stock is currently attractively valued with a forward P/E below 13, significantly lower than the broader market, and has compounded returns by 355% over the past decade [5][6]. - Analysts' price targets for DHI vary widely, reflecting the cyclical nature of the homebuilding business [5]. Investment Strategy - The strategy for investors is to build positions at favorable prices during market weakness, aiming to capitalize on a potential housing market recovery that could yield substantial long-term upside [5].

Core Viewpoint - Market focus is shifting towards the timing and implications of potential Federal Reserve interest rate cuts, particularly for equity sectors like banks and homebuilders, as easing may occur if inflation pressures continue to decrease [1][2]. Group 1: Impact on Banks - Banks are highly sensitive to interest rate changes, with their income largely derived from the spread between deposit rates and loan rates. Higher funding costs and cautious borrowing have limited profit growth for major US banks like JPMorgan Chase & Co. and Bank of America Corp. [5][6]. - A shift towards lower rates could stabilize net interest margins, as competition for deposits may ease, allowing banks to retain customers without further rate increases [7]. - Lower borrowing costs could enhance demand for loans, including mortgages and business loans, potentially improving bank revenues after a period of stagnation [8]. - However, if rate cuts are driven by economic stress, there could be an increase in loan defaults, making credit risk a critical variable for banks [9]. - Many bank stocks are trading below historical price-to-book averages, and if earnings expectations stabilize, there could be a re-rating of financials as confidence in balance sheet strength improves [11]. Group 2: Impact on Homebuilders - The housing sector is particularly sensitive to interest rates, with mortgage rates closely following long-term Treasury yields. Changes in rates can significantly affect buyer behavior [12]. - A rate cut cycle could improve mortgage affordability, unlocking demand from buyers who previously delayed purchases due to high monthly payments [14]. - Limited housing supply relative to historical norms could magnify price effects if demand recovers faster than supply, allowing builders to regain pricing power [15]. - Despite lower rates, construction costs remain high, and labor shortages could impact profit growth. Builders with national scale and efficient supply chains may be better positioned to protect margins [16]. - Homebuilder stocks often serve as forward indicators for broader consumer health, with strength in this sector potentially reinforcing optimism about discretionary spending [17]. Group 3: Yield Curve and Economic Indicators - The shape of the yield curve is crucial for both banks and homebuilders. A steeper curve benefits banks by widening the gap between lending rates and deposit costs, while lower long-term yields lead to cheaper mortgage rates for homebuyers [18]. - If the Fed cuts short-term rates while long-term yields remain stable, both sectors could benefit. However, if long-term yields fall sharply due to anticipated economic slowdowns, housing affordability may improve, but banks could face weaker loan demand and rising credit risk [19]. - Key indicators to watch include inflation data, labor market conditions, mortgage rate trends, and bank earnings guidance, as these will help determine whether rate cuts support or undermine the banking and housing industries [20][21][22][25]. Group 4: Investment Positioning - Bank stocks and homebuilders are often viewed as early cycle trades, typically outperforming when monetary policy shifts from restrictive to neutral and growth remains intact. Timing is critical, as entering too early may expose investors to downside risks, while waiting too long could result in missing initial phases of multiple expansions [26]. - Diversified banks with strong capital levels and stable deposit bases are better positioned than those with heavy exposure to riskier credit segments. Similarly, builders with national footprints and flexible pricing strategies may be more capable of converting improving demand into earnings growth [27]. - The Fed's next rate cut window is not just a macro headline but a potential catalyst for leadership changes across the equity market, with the performance of banks and homebuilders depending on the economic backdrop accompanying the cuts [28].

Core Insights - D.R. Horton reported a revenue of $6.89 billion for the quarter ended December 2025, reflecting a year-over-year decline of 9.5% and an EPS of $2.03, down from $2.61 a year ago, although the revenue exceeded the Zacks Consensus Estimate by 2.91% [1] Financial Performance Metrics - The average selling price for homes closed was $365.5 million, slightly above the average estimate of $362.65 million [4] - Homes closed totaled 17,818, surpassing the average estimate of 17,341 [4] - Net sales orders for homes were 18,300, slightly below the average estimate of 18,613 [4] - The sales order backlog stood at 11,376, below the average estimate of 11,995 [4] Geographic Revenue Breakdown - Homebuilding revenue in the Northwest was $546.7 million, exceeding the estimate of $526.71 million, representing a year-over-year increase of 2.5% [4] - Homebuilding revenue in the North reached $989.5 million, above the estimate of $957.85 million, with a year-over-year increase of 5% [4] - Homebuilding revenue in the Southwest was $894.7 million, below the estimate of $948.6 million, reflecting a year-over-year decline of 21.5% [4] - Homebuilding revenue in South Central was $1.39 billion, slightly above the estimate of $1.35 billion, but down 6.6% year-over-year [4] Revenue Sources - Home sales revenue was $6.51 billion, exceeding the average estimate of $6.29 billion, but down 8.9% year-over-year [4] - Rental revenue was $109.5 million, significantly below the average estimate of $181.48 million, marking a year-over-year decline of 49.7% [4] - Financial services revenue was $184.6 million, above the average estimate of $168.25 million, with a year-over-year increase of 1.3% [4] - Overall homebuilding revenue was $6.53 billion, surpassing the average estimate of $6.31 billion, but down 8.9% year-over-year [4] Stock Performance - D.R. Horton shares have returned +2.8% over the past month, outperforming the Zacks S&P 500 composite's +0.4% change [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating potential underperformance in the near term [3]

Core Viewpoint - D.R. Horton, Inc. (NYSE:DHI) has shown strong performance in the homebuilding sector, with significant revenue and profit growth, and is well-positioned to capitalize on market opportunities, particularly in the context of interest rates and housing policy discussions [2][3]. Financial Performance - D.R. Horton reported fiscal first-quarter earnings of $6.89 billion in revenue and $2.03 in profit-per-share, surpassing analyst estimates of $6.60 billion and $2.03 respectively [2]. - The company's shares have increased by 8.5% over the past year and by 9% year-to-date [2]. Analyst Ratings and Price Targets - Evercore ISI raised the share price target for D.R. Horton to $169 from $167 while maintaining an In Line rating [2]. - UBS increased the price target to $193 from $191 and retained a Buy rating, reflecting an increase in the valuation multiple [2]. Market Position and Strategy - D.R. Horton is the largest homebuilder in the U.S. by volume, focusing on entry-level and first-time buyer segments, which is crucial in a market facing affordability challenges [3]. - The company benefits from operational efficiency, strong cash flow generation, and a 'land-light' strategy that mitigates balance sheet risk [3]. Recent Developments - The company reported stronger-than-expected home closings and new orders, with gross margins exceeding prior guidance and a 2% year-over-year decline in construction costs [3]. - Management has raised share repurchase guidance, indicating confidence in future cash flows [3].

Financial Performance - Consolidated revenues decreased 10% to $6.9 billion compared to $7.6 billion in the prior year period [115]. - Net income attributable to D.R. Horton decreased 30% to $594.8 million compared to $844.9 million [124]. - Homebuilding revenues for the three months ended December 31, 2025, were $6.53 billion, a decrease of 8.9% compared to $7.17 billion in the prior year period [159]. - The company reported a pre-tax income of $0.2 million for the three months ended December 31, 2025, a significant decline from $11.9 million in the same period last year [182]. - The company's pre-tax income for the three months ended December 31, 2025, was $798.1 million, a decrease from $1.1 billion in the prior year period [201]. - Net income for the three months ended December 31, 2025, was $535.2 million, compared to $3,154.8 million for the year ended September 30, 2025 [251]. Home Sales and Closings - Homes closed decreased 7% to 17,818 homes, with an average closing price of $365,500, down 3% [124]. - Homes closed in Q4 2025 totaled 17,818, generating revenues of $6.51 billion, down from 19,059 homes and $7.15 billion in Q4 2024, representing a 7% decrease in closing volume and a 3% decrease in average selling price [142]. - Net sales orders increased 3% to 18,300 homes, with the value of net sales orders remaining flat at $6.7 billion [124]. - The cancellation rate for sales orders remained stable at 18% for both Q4 2025 and Q4 2024, with total cancelled sales orders valued at $1.50 billion [137]. - Homes in backlog as of December 31, 2025, totaled 11,376, with a total value of $4.31 billion, reflecting a 3% increase in backlog volume compared to 11,003 homes valued at $4.30 billion in 2024 [138]. Margins and Costs - Home sales gross margin decreased to 20.4% from 22.7% in the prior year period [124]. - The gross profit margin from home sales decreased to 20.4% in Q4 2025 from 22.7% in Q4 2024, attributed to increased average costs and decreased average selling prices [146]. - Selling, General and Administrative (SG&A) expenses decreased by 1% to $632.5 million in Q4 2025, but as a percentage of revenues, SG&A increased to 9.7% from 8.9% in the prior year [153]. Regional Performance - The South Central region saw an 8% increase in net homes sold, totaling 4,931 homes in Q4 2025, while the Northwest region experienced a 9% decrease, selling 923 homes [132]. - Homebuilding revenues in the Southwest region decreased by 22% to $894.7 million in Q4 2025, with pre-tax income dropping to $88.6 million from $168.4 million [163]. - The Southeast region saw a 17% decline in homebuilding revenues to $1.46 billion, with pre-tax income falling to $143.4 million from $222.8 million [166]. - The North region experienced a 5% increase in homebuilding revenues to $989.5 million, but pre-tax income decreased to $119.9 million from $129.8 million [168]. Inventory and Land - As of December 31, 2025, total inventory amounted to $20,239.4 million, a slight decrease from $20,316.5 million on September 30, 2025 [171]. - The company controlled 590,500 lots as of December 31, 2025, with 145,500 lots owned and 445,000 lots under purchase contracts [173]. - The total remaining purchase price of lots controlled through land and lot purchase contracts was $26.7 billion as of December 31, 2025, up from $26.0 billion on September 30, 2025 [174]. - The company acquired SK Builders for approximately $80 million in cash, adding 160 homes in inventory and 260 lots, along with a backlog of 110 homes [158]. Cash Flow and Financing - Cash provided by operating activities was $854.0 million for the three months ended December 31, 2025, compared to $646.7 million in the prior year period [237]. - Net cash used in investing activities was $116.2 million for the three months ended December 31, 2025, including $82.1 million related to a business acquisition [239]. - Net cash used in financing activities was $1.2 billion for the three months ended December 31, 2025, primarily for stock repurchases and mortgage repurchase facilities [241]. - The company expects to fund short-term financing needs with existing cash and cash generated from operations, while long-term needs may be funded through the issuance of senior unsecured debt or equity securities [240]. Debt and Equity - Homebuilding debt was $3.2 billion, unchanged from September 30, 2025 [128]. - The ratio of debt to total capital was 18.8% at December 31, 2025, down from 19.8% at September 30, 2025 [207]. - The company has a $2.305 billion senior unsecured homebuilding revolving credit facility, with an option to increase to $3.0 billion, and $2.04 billion matures on December 18, 2029 [211]. - The company repurchased 4.4 million shares at a total cost of $669.7 million during the three months ended December 31, 2025, with $2.6 billion remaining under the stock repurchase authorization [215]. Rental Operations - Rental revenues decreased to $109.5 million for the three months ended December 31, 2025, down from $217.8 million in the prior year period [182]. - The rental property inventory was valued at $2.9 billion as of December 31, 2025, compared to $2.7 billion on September 30, 2025 [183]. - The gross profit margin for rental operations was 15.2% for the three months ended December 31, 2025, down from 16.0% in the prior year [181]. - Single-family rental homes inventory included 1,330 homes as of December 31, 2025, down from 1,420 homes on September 30, 2025 [183]. Future Outlook - The company plans to manage home pricing, sales incentives, and inventory levels based on local market demand, indicating a focus on affordability amid ongoing market challenges [136]. - The company expects to maintain elevated incentive levels throughout fiscal 2026, depending on market conditions and mortgage interest rates [148]. - The company anticipates greater revenues and pre-tax income in the third and fourth quarters of its fiscal year due to seasonal patterns in homebuilding [254].

Group 1 - BTIG lowered the price target on D.R. Horton (DHI) to $182 from $186 while maintaining a Buy rating on the shares [1] - The company reported strong home sales revenue and gross margin, which contributed to exceeding the firm's estimates [1] - The Q2 guidance for gross margin was lower than expected, indicating higher incentives due to weakened demand throughout Q1 [1]

Core Viewpoint - D.R. Horton, previously held by Berkshire Hathaway, is viewed as a strong investment opportunity following a recent decline in its stock price, despite Berkshire's exit from the position in Q3 2025 [1][2]. Group 1: Market Context - D.R. Horton's current market capitalization is $46 billion, with a share price of $158.11, reflecting a daily change of 3.21% [3]. - The company has a gross margin of 23.27% and a dividend yield of 1.04% [3]. Group 2: Housing Market Dynamics - There is an ongoing housing shortage in the U.S., with Goldman Sachs estimating a need for an additional 3 million to 4 million homes to balance supply and demand [3][4]. - Housing affordability remains a significant issue, but a gradual recovery is predicted to begin in 2026, which could positively impact D.R. Horton and other homebuilders [4]. Group 3: Company Strengths - D.R. Horton has been the largest homebuilder in the U.S. by volume for 24 years, operating in 126 markets across 36 states, with 63% of its customers being first-time homebuyers [5]. - The company has industry-leading access to land, controlling 445,000 lots and owning 145,500 lots as of the end of 2025, more than any other top 10 homebuilder [6]. Group 4: Performance Metrics - D.R. Horton has outperformed the S&P 500 in total returns over the last three, five, and ten years, ranking in the top quartile of S&P 500 stocks over the past decade [7]. - The company has reduced its number of outstanding shares by 20% over the last five years and increased its dividend by 125% during the same period, indicating strong management performance [8].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of $178.00 [1][5] Core Views - The company reported a revenue decline of 10% year-on-year to $6.89 billion and a net profit drop of 30% to $590 million in FY26Q1, with a gross margin decrease of 1.9 percentage points to 23.2% [1][2] - The decline in revenue is attributed to a decrease in both the number of units sold and the average selling price, with unit sales down 7% and average price down 3% year-on-year [2] - Despite the current pressures, the company is implementing measures to improve turnover efficiency and sales incentives, which may help stabilize performance [3] - The outlook suggests that easing interest rates could gradually alleviate the housing supply-demand imbalance in the U.S., potentially enhancing sales and profit elasticity for the company [1][3] Summary by Sections Financial Performance - FY26Q1 revenue was $6.89 billion, down 10% year-on-year, with net profit at $590 million, down 30% [1][2] - Gross margin for Q1 was 23.2%, a decrease of 1.9 percentage points year-on-year but an increase of 1.5 percentage points quarter-on-quarter [2] - The company expects FY26 operating cash flow to reach $3 billion, with a plan for $2.5 billion in share buybacks and $500 million in dividends [4] Market Conditions - The U.S. housing market showed slight improvement in Q4 25, with a 20 basis point decrease in 30-year mortgage rates, although high rates and low affordability continue to suppress demand [3] - The company’s sales units and average price showed mixed results, with net sales units up 2.6% but average price down 2.4% year-on-year [3] Capital Structure and Shareholder Returns - The company maintains a healthy capital structure with a debt-to-asset ratio of 29%, down 1 percentage point from FY25Q4 [4] - Operating cash flow increased by 32% year-on-year to $850 million, with cash on hand exceeding $2.55 billion, more than double the bonds due in FY27-26 [4] Profit Forecast and Valuation - The company’s net profit forecasts for FY26-28 are $3.442 billion, $4.059 billion, and $4.610 billion, respectively, with a CAGR of 9% over the three-year period [5] - The report maintains a price-to-tangible book value (P/TBV) estimate of 2.12x for FY26, reflecting a 35% valuation premium due to the company's leading market position and strong shareholder returns [5]