Analyst estimate cut puts D.R. Horton in focus

Truist Securities has trimmed its earnings expectations for several US homebuilders, including D.R. Horton (DHI). The firm points to economic uncertainty tied to the Middle East conflict, higher oil prices, and a softer spring selling season.

D.R. Horton’s share price has recently pushed higher, with a 1-month share price return of 9.15% and a 1-year total shareholder return of 25.01%. This suggests that despite softer selling conditions, sentiment around the business is still broadly constructive.

If earnings revisions have you reassessing housing exposure, it can be useful to broaden the view to other parts of the market and check out 31 power grid technology and infrastructure stocks

With Truist turning more cautious just as D.R. Horton posts a 1 year total return of 25.01% and trades only about 3% below its price target, you have to ask: Is there still value here, or is future growth already in the price?

Most Popular Narrative: 6.7% Undervalued

Against a last close of $149.81, the most followed narrative pegs D.R. Horton’s fair value at $160.50, using an 8.77% discount rate to frame long term returns.

The analysts have a consensus price target of $162.6 for D.R. Horton based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $199.0, and the most bearish reporting a price target of just $110.0.

Curious what earnings path and margin profile need to line up for that fair value to hold? The narrative leans on specific revenue bridges, profitability assumptions, and a tighter future P/E to make the numbers work.

Result: Fair Value of $160.50 (UNDERVALUED)

However, higher incentives that weigh on margins, along with any regulatory overhang from a potential antitrust probe, could quickly challenge the current undervalued narrative.

Another Angle on Valuation

While the popular narrative points to a fair value of $160.50 and a 6.7% discount, the SWS DCF model tells a different story, with a future cash flow value of $127.65 versus the current $149.81 share price. In simple terms, cash flow assumptions point to an overvalued stock. So which lens do you trust more: earnings multiples or cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out D.R. Horton for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 59 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals in D.R. Horton’s valuation leave you unsure, it could be worth checking the numbers yourself and deciding quickly where you stand, then weighing those views against the company’s 2 key rewards

Looking for more investment ideas?

If D.R. Horton has you thinking more broadly about where to put fresh capital to work, it makes sense to line up a few other high quality candidates.

• Target resilient income potential by reviewing companies in the 11 dividend fortresses so your portfolio is not relying on a single source of returns.
• Hunt for quality at a discount by scanning the screener containing 23 high quality undiscovered gems before others catch on and reprice those opportunities.
• Lower overall risk by balancing your holdings with the 70 resilient stocks with low risk scores and avoid being overexposed to just one theme.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.