Here's Why You Should Buy D.R. Horton (DHI) Stock Right Now

The housing market has lately been catching the eye in Wall Street, thanks to the resilient job growth and gradual economic recovery. U.S. homebuilders are now more optimistic about their sales prospects as the recent homebuilder sentiment leaped forward. The National Association of Home Builders/Wells Fargo builder sentiment index touched a eight-month high of 70 in November and second-highest since the recession (July 2005).

D.R. Horton, Inc. DHI is one such company that continues to show strength in several areas and adding the stock to your portfolio should not disappoint. The company is one of the leading national homebuilders.

D.R. Horton’s shares have returned 81% so far this year, outperforming the industry’s 63.6% rally. Estimates have moved north in the last 30 days for the current as well as for the next year by 2.6% and 8.2%, respectively. This bullish analysts’ sentiment justifies the stock’s current Zacks Rank #1 (Strong Buy) and why we are expecting the company to outperform in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

What Makes D.R. Horton a Solid Pick?

Stellar Performance: The company remains committed toward achieving continued double-digit annual growth in both revenues and pre-tax profits, while generating positive cash flow and improved returns.

In its last reported quarter, D.R. Horton sales improved 11.2% year over year and order trends also remained strong despite the adversity due to the recent tropical storms. The company’s earnings of 82 cents per share increased 9.3% year over year driven by higher home sales. New orders rose 18% year over year, increasing across all operating regions except Midwest.

Management consistently made an effort to reduce both construction and selling, general and administrative (SG&A) expenses. In fiscal 2017, the company’s SG&A expenses, as a percentage of homebuilding revenues, decreased 40 basis points to 8.9%.

With an impressive backlog (worth $3.7 billion), along with a well-stocked supply of land, lots and homes, D.R. Horton is well positioned for fiscal 2018.

Solid Estimated EPS Growth: The homebuilder’s earnings for fiscal 2018 are expected to increase 17.3% year over year, comfortably outpacing the industry’s average projected growth of 15.3%. The company’s projected sales growth is a healthy 13.6%, higher than the industry average of 7.2%.

The company’s EPS growth is expected to increase 14.9% the next year on 12.1% growth in revenues.

Return on Equity: D.R. Horton’s trailing 12-month return on equity (ROE) supports its growth potential. ROE in the trailing 12 months is 14.1%, while the industry gained 10.6%, reflecting the company’s efficient usage of shareholders’ funds.

VGM Score: D.R. Horton has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) make solid investment choices.

Solid Industry Fundamental: The housing/homebuilding industry has been riding high on steady job and wage growth, historically low mortgage rates and rapidly increasing household formation. The positive momentum is evident from the robust Zacks Industry Rank (Top 32% out of 256 industries).

New home and existing home sales got a major boost in October, suggesting that the market is regaining momentum after hurricanes Harvey and Irma temporarily stalled activity. A strong job market and a soft interest rate regime have ensured consistent gains for homebuilding stocks.

Importantly, new-home sales increased to a seasonally adjusted annual rate of 685,000 in October. This marks the second straight monthly gain, scaling their highest level in 10 years. October sales figure increased 18.7% from a year ago and 6.2% from the prior month.

Other Stocks to Consider

You can consider a few other top-ranked stocks in the same space.

TRI Pointe Group, Inc. TPH sports a Zack Rank #1. Its earnings are expected to grow 12.5% in 2017.

KB Home KBH, a Zack Rank #2 (Buy) stock, is expected to witness 57.7% growth in earnings this year.

NVR Inc. NVR also carries Zacks Rank #2. Its earnings are expected to grow 41.3% this year.

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