D.R. Horton, Inc. (DHI) and its subsidiaries are engaged primarily in the construction and sale of single-family homes. DHI operates in 88 markets in 29 states, under the names of D.R. Horton, Emerald Homes, Express Homes, Freedom Homes, and Pacific Ridge Homes. The company also provides mortgage financing and title services. With the risk of inflation, and near zero interest rates, the demand for real estate is rising. Consequently, with the increased demand, the price of homes is rising as well. This week, I fundamentally analyze D.R. Horton’s stock. I review DHI’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2020’s free cash flow of $1,325 million figure, a 5% growth rate of FCF (growth for the next 10 years), 10% discount rate, 3% long term growth rate (growth from 10 year mark to perpetuity), 369 million shares outstanding, and $4,283 million of long term debt, the DCF analysis yields us an intrinsic value of $48.12 per share. Using the current stock price of about $80.02 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return to be 3.3% if we hold this security through 2045.
0:36 Business Profile / Operating Segments
3:12 Key Ratios Analysis
13:29 Discounted Cash Flow Analysis / Intrinsic Value
15:23 Expected Rate of Return Calculation
16:25 Summary / Conclusion
D.R. Horton’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
D.R. Horton, Inc. is a home construction company incorporated in Delaware and headquartered in Arlington, Texas. Since 2002, the company has been the largest homebuilder by volume in the United States. The company ranked number 194 on the 2019 Fortune 500 list of the largest United States corporations by revenue.
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