Construction Stocks

D.R. Horton Inc Valuation – January 2017 $DHI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how D.R Horton Inc (DHI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): D.R. Horton, Inc. is a homebuilding company. The Company constructed and sold homes in 27 states and 79 markets, as of September 30, 2015. The Company’s segments include its 39 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company’s 39 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets.

DHI Chart

DHI data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of DHI – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,607,755,527 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.64 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -174.73% Fail
6. Moderate PEmg Ratio PEmg < 20 12.97 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.56 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.40 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.18
MG Growth Estimate 11.87%
MG Value $70.21
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $31.57
MG Value based on 0% Growth $18.51
Market Implied Growth Rate 2.23%
Current Price $28.23
% of Intrinsic Value 40.21%

D.R. Horton, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.22 in 2013 to an estimated $2.18 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into D.R. Horton, Inc. revealed the company was trading below its Graham Number of $32.39. The company pays a dividend of $0.32 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 12.97, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $13.03.

D.R. Horton, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $13.03
Graham Number $32.39
PEmg 12.97
Current Ratio 6.64
PB Ratio 1.56
Current Dividend $0.32
Dividend Yield 1.13%
Number of Consecutive Years of Dividend Growth 4

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $9,653,600,000
Total Current Liabilities $1,454,100,000
Long-Term Debt $3,271,300,000
Total Assets $11,558,900,000
Intangible Assets $80,000,000
Total Liabilities $4,766,400,000
Shares Outstanding (Diluted Average) 375,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.56
Sep2016 $2.36
Sep2015 $2.03
Sep2014 $1.50
Sep2013 $1.33
Sep2012 $2.77
Sep2011 $0.23
Sep2010 $0.77
Sep2009 -$1.73
Sep2008 -$8.34
Sep2007 -$2.27
Sep2006 $3.90
Sep2005 $4.62
Sep2004 $3.09
Sep2003 $2.05
Sep2002 $1.44
Sep2001 $1.11
Sep2000 $0.84
Sep1999 $0.69
Sep1998 $0.47
Sep1997 $0.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.18
Sep2016 $1.99
Sep2015 $1.73
Sep2014 $1.49
Sep2013 $1.22
Sep2012 $0.35
Sep2011 -$1.33
Sep2010 -$1.92
Sep2009 -$2.43
Sep2008 -$1.78
Sep2007 $1.76
Sep2006 $3.52
Sep2005 $3.04
Sep2004 $2.07
Sep2003 $1.45
Sep2002 $1.07
Sep2001 $0.82

Recommended Reading:

Other ModernGraham posts about the company

18 Best Stocks For Value Investors This Week – 1/30/16
D.R. Horton Inc Valuation – January 2016 Update $DHI
8 Best Stocks For Value Investors This Week – 10/13/15
D.R. Horton Inc. Analysis – October 2015 Update $DHI
The Best Companies of the Construction Industry – October 2015

Other ModernGraham posts about related companies

Quanta Services Inc Valuation – August 2016 $PWR
Jacobs Engineering Group Inc Valuation – August 2016 $JEC
PPG Industries Inc Valuation – August 2016 $PPG
D.R. Horton Inc Valuation – August 2016 $DHI
Martin Marietta Materials Inc Valuation – August 2016 $MLM
Fluor Corporation Valuation – August 2016 $FLR
Vulcan Materials Co Valuation – July 2016 $VMC
PulteGroup Inc Valuation – July 2016 $PHM
Sherwin-Williams Co Valuation – July 2016 $SHW
Cummins Inc Valuation – July 2016 $CMI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top