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Home Builder Stocks Rise Ahead of D.R. Horton’s Q1 Earnings Report


Home builder stocks experienced a boost on Monday in anticipation of the first-quarter earnings report from D.R. Horton, the largest home builder in the country. The report is scheduled to be released before the market opens on Tuesday.

Analysts project that D.R. Horton will announce earnings of $2.87 per share, with $7.55 billion in revenue for its fiscal first quarter, which ended on December 31. This reflects an increase from the previous year’s first-quarter earnings of $2.76 per share on $7.3 billion in revenue.

D.R. Horton’s earnings report is expected to provide valuable insights for the year ahead. In early November, the builder stated that it anticipated closing between 86,000 and 89,000 homes in 2024. The company recognizes revenue once homes are closed and delivered to customers.

Wells Fargo analysts Sam Reid and Zachary Fadem noted that D.R. Horton may enhance its outlook on home deliveries. The analysts predict that there will be 88,300 deliveries in 2024, which surpasses the consensus estimate of 88,100 deliveries among Wall Street analysts.

The decline in mortgage rates since November has contributed to a surge in home builders’ stocks. These rates have dropped by more than a percentage point, prompting an end-of-year rally for the industry. In 2023, D.R. Horton’s shares grew by a significant 70.5%. If the company surpasses expectations in terms of orders, its shares could experience further gains. Wells Fargo suggests that profit margins may also outperform initial projections.

The recent rally in D.R. Horton’s shares following its last earnings report has complicated predictions for this quarter, according to the Wells Fargo analysts. Nonetheless, the stock has already risen by 3.1% since the beginning of this year.

The Future of Home Sales

In a recent interview with Douglas Yearley, the CEO of builder Toll Brothers, it was revealed that limited inventory of existing homes for sale, coupled with the strong demand from both millennials and baby boomers, will have a positive impact on the business of home builders.

Sales of new homes in 2023 experienced significant growth, while the market for previously owned homes slowed down. According to the National Association of Realtors, only 4.09 million existing homes were sold last year, marking the lowest total in nearly three decades. On the other hand, new home sales saw an increase of approximately 4% compared to the previous year, based on available data for the 11 months of 2023.

Although new home sales declined in November due to rising mortgage rates, economists anticipate improved sales in December. Consensus estimates compiled by FactSet project new home sales to rise to a seasonally adjusted annual rate of 647,500 in December. This data, which is based on contract signings, will be released on Thursday at 10 a.m.

The positive news has also had a ripple effect on builder stocks, which experienced a boost on Monday. The iShares U.S. Home Construction exchange-traded fund, which tracks builders and related industries, recorded a 1.5% increase. This coincided with a decrease in the 10-year Treasury yield, resulting in a yield of 4.1%. Lower Treasury yields often lead to reduced mortgage rates, which are a key factor affecting housing costs.

Overall, the future of home sales is looking promising as the demand from both millennials and baby boomers remains strong. With limited inventory in the existing homes market, builders are expected to thrive in the coming years.

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