D.R. Horton, Inc. (NYSE:DHI) — This company is the largest publicly traded homebuilder in the U.S. The number of homes delivered in fiscal year (Sep) 2016 was 40,309 with FY revenues of $12.2 billion. Management’s expectation is to deliver 44,500 to 46,000 homes in FY 2017, which would be an increase of 10% to 14% over FY 2016.
The average selling price is estimated by Standard & Poor’ to increase by 3.5% to 4% for FY 2017. EPS estimates are $2.75 in FY 2017 and $3 in FY 2018 (S&P). Land costs are not considered a negative factor since DHI stock mostly builds in the Sunbelt region of the U.S. Although these numbers are estimates, a known value is its backlog value which on March 31, 2017 was at $4.4 billion.
S&P’s target price of $38 is based on a forward price-to-earnings ratio of 13.8X FY 2017 and 2018 earnings. This company is the leader in the U.S. building industry and as such may deserve an even higher forward P/E since U.S. Census Bureau trends show that new residential permits are up 17% for March 2017.
Technically, daily charts can be misleading. DHI’s daily looks like a double-top at about $35. However, the weekly chart shows that the recent high at $35 is part of an overall broad bull channel with support at under $30 and resistance at about $38.
There has been recent profit-taking, which probably resulted from the announcement of a 10% tariff increase on Canadian lumber imports. But that increase should, according to analysts, have slight to no impact on U.S. home sale prices, since demand for new construction remains high. Thus, try to buy DHI stock at $31 or lower for a trade to $38 for a proposed gain of over 20% by October.
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