Core Insights - Identifying stocks to buy before the next Federal Reserve decision is crucial for optimizing investment portfolios, with a focus on company fundamentals to assess financial health and market positioning [1][2] Real Estate Investment Trusts (REITs) - Realty Income (NYSE:O) is a diversified REIT with investments in retail, industrial, and data centers, benefiting from geographic and asset-type diversification [3][4] - The company reported a strong portfolio health with a 98.6% occupancy rate and a rent recapture rate of 104.3% on 198 renewed or re-leased leases [3][4] - Realty Income invested $598 million in Q1 2024, achieving a 7.8% initial weighted average cash yield, with over half of the investment in Europe and the U.K. at an 8.2% yield [3] Homebuilding Industry - DR Horton (NYSE:DHI) is a leading homebuilder with strong financial metrics, reporting a homebuilding return on inventory of 29.5% and a return on equity of 21.5% [5][6] - The company closed 24,155 homes in Q3, a 5% increase from the previous year, with home sales revenue rising 6% to $9.2 billion [5][6] - DR Horton maintains a large inventory of 42,600 homes, positioning itself to meet market demand effectively [5][6] Home Improvement Retail - Home Depot (NYSE:HD) focuses on the residential asset class, with a total addressable market of about $1 trillion, and significant growth potential in the residential pro contractor segment [7][8] - The company is expanding its Pro ecosystem to 17 markets by fiscal year-end, enhancing its service capabilities for specialty trade Pro customers through strategic acquisitions [8]

Core Viewpoint - The content emphasizes the importance of conducting personal due diligence and consulting competent advisors before making any financial decisions, particularly in the context of investments and trading activities [1]. Group 1 - The website provides general news, personal analysis, and third-party content intended for educational and research purposes [1]. - It explicitly states that the information should not be interpreted as recommendations or advice for any financial actions [1]. - The content is not tailored to individual financial situations or needs, highlighting the necessity for users to apply their own discretion [1]. Group 2 - The website includes information about complex financial instruments such as cryptocurrencies and contracts for difference (CFDs), which carry a high risk of losing money [1]. - Users are encouraged to perform their own research and understand the risks involved before investing in any financial instruments [1].

Group 1: Market Overview - Major U.S. market indexes are experiencing a summer pullback, with a shift in focus towards August and corporate earnings, particularly in the tech sector [1] - The U.S. economy grew at an annualized pace of 2.8% in Q2, surpassing the expected 2% growth [1] - Interest rate-sensitive areas of the market are showing renewed strength as the Fed approaches its first interest rate cut of the cycle [1] Group 2: Inflation Trends - The Personal Consumption Expenditures (PCE) index for June showed a year-over-year price increase of 2.5%, aligning with economists' projections [2] - The core PCE, which excludes food and energy costs, rose 2.6% year-over-year, marking the slowest annual increase in over three years [2] - Fed Chair Jerome Powell indicated that the central bank is likely to cut rates soon, although he is waiting for more confirmation on inflation reaching the 2% target [2][3] Group 3: Homebuilder Industry Performance - Interest-rate sensitive homebuilders have surged over 20% in July due to low existing housing inventory and a favorable rate outlook [4] - The Zacks Building Products – Homebuilder industry is ranked in the top 14% of approximately 250 industry groups, indicating strong future performance potential [5] - D.R. Horton reported fiscal Q3 earnings of $4.10/share, a 7.9% surprise, with total revenues of $10 billion, a 2% increase from the prior year [6] - PulteGroup reported Q2 earnings of $3.58/share, reflecting an 11.5% surprise and a 19.3% increase year-over-year, with total revenues of $4.6 billion, up 9.8% from the previous year [7] Group 4: Investment Strategy - Investors are advised to be selective and target stocks breaking out of proper bases while diversifying into leading industries [8] - Other market sectors outside of tech are showing strength, suggesting a broadening rally [8]

Core Viewpoint - The U.S. housing market is experiencing a cooling trend after significant gains during the Covid pandemic, impacting home builders and related stocks, which have shown mixed performance year-to-date compared to the S&P 500 [1][2]. Housing Market Overview - The "lock-in" effect has reduced the supply of existing homes, as homeowners with lower mortgage rates are less likely to sell, leading to decreased overall demand for new homes [2]. - In June, new single-family home sales fell 0.6% to 617,000 units, marking a seven-month low, with a year-over-year decline of 7.4%. The average price for new homes remained stable at $417,300 [3]. - The average 30-year fixed mortgage rate is currently about 6.8%, up from 6.6% in January, influenced by inflation concerns and expectations of sustained high benchmark interest rates [3]. Company Performance - D.R. Horton, Inc. (DHI) stock has surged 150% from $70 in early January 2021 to approximately $175, outperforming the S&P 500, which increased by about 45% during the same period [4]. - DHI's stock returns were 57% in 2021, -18% in 2022, and 70% in 2023, consistently beating the S&P 500's performance [4]. - D.R. Horton reported Q3 FY'24 earnings of $4.10 per share, a 5% increase from the previous year, and announced a new $4 billion share-repurchase program [5]. Future Outlook - Despite the uncertain macroeconomic environment, there is a fundamental under-supply of homes in the U.S., which may provide good demand visibility for major housing players [5]. - The Federal Reserve is contemplating an interest rate cut this year, which could lower mortgage rates and stimulate demand for housing [5]. - Easing supply chain constraints and price corrections for construction materials may also benefit home builders [5].

Investment Rating - The report does not provide a specific investment rating for the company [1][5] Core Views - The company's FY2024Q3 performance exceeded expectations with revenue of $10 billion, a 2.5% YoY increase, and net income attributable to shareholders of $1.35 billion, a 1.4% YoY increase [1][5] - The company's new home sales remained robust, with 24,155 homes delivered in FY2024Q3, a 5% YoY increase, and 23,001 homes sold, a 1% YoY increase [1][6] - The company's financial position is strong, with $3 billion in cash and $5.7 billion in interest-bearing debt, resulting in a net debt ratio of 10.6% and a total capital debt ratio of 18.8% [1][8] - The company announced a new $4 billion share repurchase plan, representing approximately 7% of its market capitalization as of July 19, 2024 [1][9] Financial Performance - FY2024Q3 revenue was $10 billion, exceeding the company's guidance and representing a 2.5% YoY increase [1][5] - Net income attributable to shareholders was $1.35 billion, a 1.4% YoY increase [1][5] - Gross margin for the quarter was 26.5%, a slight decrease of 0.1 percentage points YoY [1][5] - Net margin attributable to shareholders was 13.6%, also a slight decrease of 0.1 percentage points YoY [1][5] - Quarterly dividend per share was $0.3, a 20% YoY increase [1][5] Operational Performance - The company delivered 24,155 homes in FY2024Q3, a 5% YoY increase, with recognized revenue of $9.2 billion, a 6% YoY increase [1][6] - The company sold 23,001 homes in FY2024Q3, a 1% YoY increase, with sales revenue of $8.7 billion [1][6] - As of June 30, 2024, the company had 42,600 homes in inventory, with 26,200 unsold, indicating healthy inventory levels [1][6] Shareholder Returns - In FY2024Q3, the company repurchased 3 million shares for $441.4 million and paid $98.5 million in dividends, returning a total of $540 million to shareholders [1][9] - The company had $459.7 million remaining in its share repurchase authorization as of June 30, 2024, and announced a new $4 billion repurchase plan [1][9] Updated Guidance - The company tightened its FY2024 revenue guidance to $36.8-$37.2 billion and increased its home delivery guidance to 90,000-90,500 homes [12] - For FY2024Q4, the company expects revenue of $10-$10.4 billion, home deliveries of 24,000-24,500, and a gross margin of approximately 24% [12] - The company increased its FY2024 share repurchase guidance from $1.6 billion to $1.8 billion [12]

Financial Performance - Homebuilding revenues increased 6% to $9.2 billion compared to $8.7 billion, with homes closed increasing 5% to 24,155 homes[146] - Consolidated revenues increased 7% to $26.8 billion in the nine months ended June 30, 2024, compared to $25.0 billion in the prior year period[137] - Net income was $3.5 billion in the nine months ended June 30, 2024, compared to $3.3 billion in the prior year period, with diluted earnings per share increasing to $10.43 from $9.39[137] - Home sales gross margin improved to 24.0% compared to 23.3%[146] - Consolidated net income attributable to D.R. Horton increased 7% to $3.5 billion compared to $3.2 billion[162] - Diluted net income per common share increased 11% to $10.43 compared to $9.39[162] - Pre-tax income for the three and nine months ended June 30, 2024, was $1.8 billion and $4.6 billion, respectively, compared to $1.8 billion and $4.3 billion in the prior year periods[229] Home Sales and Orders - Net sales orders increased 1% to 23,001 homes, with the value of net sales orders remaining essentially flat at $8.7 billion[146] - Homes closed increased 10% to 66,043 homes, while the average closing price decreased 1% to $378,200[158] - Net sales orders increased 14% to 67,526 homes, with a value increase of 15% to $25.6 billion[158] - The sales order backlog decreased by 12% year-over-year, totaling 16,792 homes with a value of $6.55 billion as of June 30, 2024[172] - The cancellation rate for sales orders was 18% for both the three and nine months ended June 30, 2024, consistent with the prior year[171] Inventory and Land Management - Homebuilding inventories totaled $20.5 billion, up from $18.2 billion at September 30, 2023[148] - Approximately 26,200 homes in inventory were unsold as of June 30, 2024, compared to 27,000 unsold homes as of September 30, 2023[208] - The company plans to actively manage its inventory of owned land and lots and homes under construction relative to demand in each market[201] - Total land/lots owned and controlled as of June 30, 2024, was 630,200, with 150,900 lots owned and 479,300 lots controlled through purchase contracts[207] Regional Performance - Homebuilding revenues for the Northwest region increased by 10% in Q2 2024 and by 9% for the nine months, with pre-tax income of $121.2 million and $300.0 million respectively[193] - The Southwest region saw homebuilding revenues increase by 16% in Q2 2024 and by 28% for the nine months, with pre-tax income of $209.4 million and $515.3 million respectively[194] - The South Central region experienced a 7% decrease in homebuilding revenues in Q2 2024, with pre-tax income of $368.7 million[196] - The East region reported a 17% increase in homebuilding revenues in Q2 2024, with pre-tax income of $314.9 million[198] Financial Services - Financial services revenues increased 6% to $242.3 million compared to $228.5 million[153] - DHI Mortgage originated 18,807 first-lien loans for D.R. Horton homebuyers in the three months ended June 30, 2024, an increase of 11% from 17,011 in the same period of 2023[218] - The percentage of D.R. Horton homes financed by DHI Mortgage rose to 78% in the three months ended June 30, 2024, up from 74% in the prior year[218] - Total loan origination volume increased by 10% and 15% for the three and nine months ended June 30, 2024, respectively, with mortgage operation revenues rising by 6% to $189.3 million and 15% to $512.4 million[224] Expenses and Margins - Selling, General and Administrative (SG&A) expenses increased by 12% to $656.5 million in Q2 2024 and by 13% to $1.9 billion for the nine months, with SG&A as a percentage of homebuilding revenues at 7.1% and 7.5% respectively[186] - Gross profit from home sales increased to $2.2 billion in Q2 2024, up from $2.0 billion in Q2 2023, with a gross profit margin of 24.0%, an increase of 70 basis points[180] - For the nine months ended June 30, 2024, gross profit from home sales rose to $5.8 billion, compared to $5.2 billion in the prior year, with a gross profit margin of 23.4%, an increase of 50 basis points[181] Debt and Cash Management - At June 30, 2024, the company had outstanding notes payable totaling $5.7 billion, with a debt to total capital ratio of 18.8%[234] - Cash and cash equivalents for the homebuilding segment totaled $2.2 billion at June 30, 2024[237] - In the nine months ended June 30, 2024, net cash provided by operating activities was $228.2 million, a significant decrease from $2.3 billion in the prior year period[257] - Cash used to increase residential land and lots was $2.0 billion in the current year period, compared to $915.0 million in the prior year period[257] Compliance and Legal Matters - The Company is involved in lawsuits and contingencies but believes that liabilities will not materially affect its consolidated financial position or cash flows[288] - The Company received Notices of Violation from the EPA and other agencies related to stormwater compliance, which have been resolved through a Consent Decree issued on April 8, 2024[289] - The total cost of the penalty and the supplemental environmental project related to the Consent Decree is not expected to exceed $1 million[289]

Investment Overview - D.R. Horton, Inc. (NYSE:DHI) is rated as a hold due to unattractive valuation despite positive business outlook driven by high mortgage rates limiting existing home inventory and increasing demand for new homes [1] Business Description - DHI focuses on constructing and selling single-family homes, targeting entry-level and move-up markets, with significant regional contributions from South Central (25%), Southeast (28%), and East (20%) as of 3Q24 [2] 3Q24 Earnings - DHI reported 3Q24 revenue of $9.96 billion, gross profit of $2.67 billion, adjusted EBITDA of $1.83 billion, and operating EPS of $4.10; orders grew by 1%, closings by 5%, and average delivery price by 1% [3] - The conversion ratio improved to 135% compared to 119% in 3Q23, and management repurchased 3 million shares for $441 million during the quarter [3] Growth Outlook - The company is expected to benefit from macro conditions where high interest rates reduce existing home inventories, driving demand towards home builders; management noted solid demand with improving traffic late in the quarter [4] - DHI's focus on lower price points positions it well in the current market where affordability is a concern [5] Margins Outlook - DHI's EBITDA margin is trending upwards to 18.4% in 1Q24, expected to sustain due to solid demand, improved supply chain, and easing raw material prices; lumber prices decreased by 1% sequentially [7] - However, product mix changes, including a 2% decline in home sizes, may negatively impact margins, balancing out the positives [8] Valuation - DHI's revenue is projected to grow in mid-single digits for FY24 and FY25, with EBITDA margin unlikely to see further upsides due to investments in incentives and negative product mix [10] - The stock currently trades at 9x forward EBITDA, at the upper end of its historical range, indicating limited upside potential [10] Conclusion - The hold rating reflects the unattractive valuation despite strong demand outlook and solid execution; the market has priced in near-term positives, and adjustments to the recommendation may occur if valuation becomes more favorable [12]

Core Viewpoint - Momentum investing focuses on following a stock's recent price trends, with the aim of buying high and selling higher, leveraging established price movements for profitable trades [1] Company Overview: D.R. Horton (DHI) - D.R. Horton currently holds a Momentum Style Score of B, indicating a favorable momentum characteristic [1] - The company has a Zacks Rank of 1 (Strong Buy), which is associated with a strong historical performance in the market [2] Performance Metrics - DHI shares have increased by 13.07% over the past week, outperforming the Zacks Building Products - Home Builders industry, which rose by 5.36% during the same period [3] - Over the past month, DHI's price change is 22.09%, compared to the industry's 13.81% [3] - In the last three months, DHI shares have risen by 19.62%, and over the past year, they have increased by 36.26%, while the S&P 500 has moved 11.27% and 22.23%, respectively [3] Trading Volume - DHI's average 20-day trading volume is 2,880,839 shares, which serves as a baseline for price-to-volume analysis [3] Earnings Outlook - In the last two months, 5 earnings estimates for DHI have been revised upwards, while 1 has been revised downwards, leading to an increase in the consensus estimate from $14.32 to $14.39 [4] - For the next fiscal year, there have been 2 upward revisions and 1 downward revision in earnings estimates [4] Conclusion - D.R. Horton is positioned as a 1 (Strong Buy) stock with a Momentum Score of B, making it a potential candidate for near-term investment opportunities [5]

Group 1 - D.R. Horton (DHI) is currently ranked 1 (Strong Buy) in the Zacks Rank system, indicating a strong earnings outlook compared to its peers in the Construction sector [1][2] - Year-to-date, D.R. Horton has returned 14.4%, outperforming the average Construction sector gain of 14% [2] - The Zacks Consensus Estimate for DHI's full-year earnings has increased by 1.1% over the past three months, reflecting improved analyst sentiment [2] Group 2 - D.R. Horton is part of the Building Products - Home Builders industry, which ranks 67 in the Zacks Industry Rank, and has gained an average of 16.6% this year [3] - Despite D.R. Horton's strong performance, it is slightly underperforming its industry average [3] - Another notable stock in the same industry, KB Home (KBH), has returned 28.1% year-to-date and has a Zacks Rank of 2 (Buy) [2][3]

Core Viewpoint - D.R. Horton (DHI) has received a Zacks Rank 1 (Strong Buy) upgrade, indicating a positive earnings outlook that may lead to increased buying pressure and stock price appreciation [1][2]. Earnings Estimates and Revisions - The Zacks Consensus Estimate for D.R. Horton for the fiscal year ending September 2024 is projected at $14.29 per share, reflecting a 3.4% increase from the previous year [5]. - Over the past three months, the consensus estimate for D.R. Horton has risen by 0.5%, indicating a trend of increasing earnings estimates [5]. Zacks Rating System - The Zacks Rank system classifies stocks based on earnings estimate revisions, with D.R. Horton now positioned in the top 5% of Zacks-covered stocks, suggesting potential for near-term stock price increases [4][7]. - Historically, Zacks Rank 1 stocks have generated an average annual return of +25% since 1988, highlighting the effectiveness of the rating system in identifying strong investment opportunities [4]. Market Dynamics - The relationship between earnings estimate revisions and stock price movements is well-established, with institutional investors often driving price changes based on these revisions [3]. - The upgrade of D.R. Horton reflects an improvement in the company's underlying business, which is expected to be recognized by investors through increased stock prices [3].