On Friday, RBC (TSX:RY) Capital Markets adjusted its outlook on D.R. Horton (NYSE:DHI), the largest home construction company in the United States, by reducing its price target to $141 from the previous $142, while maintaining an Underperform rating on the stock. The revision reflects a modest decrease in the firm's expectations for the company's future earnings per share (EPS).
The firm's analysis indicates a 1% reduction in the estimated EPS for the fiscal year 2024 to $13.94, and a 5% decrease for fiscal year 2025 to $14.62. This adjustment is attributed to anticipated gross margin percentage pressure due to prolonged use of incentives and diminished near-term rental profits, despite an expected increase in closings.
D.R. Horton's management has described current demand as positive but also recognized the necessity to adjust incentives as needed to sustain sales amidst the recent rise in interest rates. RBC Capital Markets suggests that the impact of these incentives has not been fully accounted for in the company's third-quarter gross margin percentage guidance.
The firm anticipates potential risks to the second half of the fiscal year and into 2025, considering the ongoing pressure and uncertainty surrounding interest rates.
The updated stock price target by RBC Capital Markets is part of a broader analysis of D.R. Horton's financial outlook, taking into account various market conditions and internal company factors that could influence its performance.
InvestingPro Insights
Analyzing the latest data from InvestingPro, D.R. Horton (NYSE:DHI) showcases a robust financial position with a market capitalization of $48.17 billion, reflecting its stature as a leading player in the home construction sector.
The company's P/E ratio stands at 9.91, with a slight adjustment to 9.63 when looking at the last twelve months as of Q2 2024, indicating a potentially undervalued stock relative to earnings. D.R. Horton's revenue growth has been impressive, with a 10.12% increase over the last twelve months as of Q2 2024, surpassing the quarterly growth rate of 14.23% in Q2 2024.
InvestingPro Tips highlight that D.R. Horton has not only raised its dividend for 10 consecutive years but also maintained dividend payments for 11 consecutive years, which could be particularly attractive to income-focused investors.
Another positive sign is the company's liquidity position, where liquid assets comfortably exceed short-term obligations. Despite some analysts revising their earnings downwards for the upcoming period, the company remains profitable, with a significant price uptick of 44.73% over the last six months as of the date provided.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available on the platform, including insights on the company's volatility, debt levels, and projected profitability. To access these insights and more, consider exploring https://www.investing.com/pro/DHI and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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