DR Horton Review: how do american construction companies feel

Обзор dr horton: как себя чувствуют американские строительные компании

DR Horton (NYSE: goat) - one of the largest American home builders. The company reported well, but what awaits her now and what distinguishes her from competitors for the better?

When creating the material, sources were used, inaccessible to users from the Russian Federation. Hopefully, you know, what to do.

What do they make money on

We did the analysis of the company's business back in 2020, so we will not repeat here, let's get to the point.

22 July, the company reported for 3 quarter - and the result was good: revenue increased by 35%, and profit - by 77%. Revenue increased in all segments: in the sale of houses, rent and finance. A tangible increase in revenue took place in all regions.

Everything seems to be cool, but there is a nuance. If you delve into the reporting of the company, then you can see, that the total number of homes sold has dropped compared to the same period 2020, and strongly - on 17%.

The growth in revenue was due to an increase in the average price of houses by 22%. That is, the marginality of home sales has grown significantly, despite the fact that the number of houses sold has fallen.

Let's look at economic statistics - it came out a month after the report and reflects the situation, which shareholders of the company will have to face when reading the next report.

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

The real estate market has become unfriendly towards buyers

At first sight, American construction companies are now lucky: construction activity is at its highest for many years and companies are selling well even houses, which have not yet begun to build. This indicates a high demand.

But when compared with 2020, then home sales have already started to fall, while the supply on the market increases, and this will significantly affect the prices of houses. In the structure of houses sold, an increasing role is played by real estate with a price much higher than average - which logically led to a drop in applications for mortgages..

All these processes are already affecting the mood of home builders., and therefore need to be wary of a decline in the financial performance of DR Horton: market demand decreased and supply increased. Buyers will be motivated to wait for more homes at affordable prices..

Here, truth, it is worth making a reservation: it's not about a crushing fall, but simply about a significant slowdown in growth - since it has to be compared with abnormally high rates 2020. A similar situation happened with manufacturers of food and household goods: in 2 in the quarter of 2021, all of them performed worse, than in the same period 2020, because at the beginning of the pandemic, people were frantically active, and then demand returned to normal. Houses are, sure, not products, but here we can face a similar story.

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Positive

But let's not just talk about the negative - the company has its pluses.. Firstly, more than half of the houses sold by DR Horton are in the price category under $ 300 thousand - this is noticeably lower than the average home price in the United States, which is almost 375 thousand dollars. In conditions, when consumers are becoming more price sensitive, it is important: means, the company's sales will not fall so much, how could, in the event of a massive drop in demand in the real estate market.

Secondly, the company occupies a leading position in a number of promising regional real estate markets in the United States in the states of the South and Southwest. These markets were growing even before the pandemic thanks to the influx of new residents from the West and the North.: for not very big money by the standards of New York and Los Angeles, in the southern states one could find very decent housing with good surroundings.

But the combination of the pandemic and racial riots led to a massive exodus of the solvent population from large metropolitan areas to the suburbs., and digitalization of work made the option of moving to another state quite workable, cheaper. So the states of the South became even more attractive in this context.. In the suburbs of the largest cities in Texas, Georgia and Arizona DR Horton Tops. I think, that these markets will become important growth points for the company's business in the future. Sure, in the case of Texas, there is a constant threat of hurricanes and floods, but this is already the cost of the profession.

Also, the company is favored by the reduction in prices for wood - its main raw material. Given the price range of her homes, this is an important point: the rise in raw material prices will not have to be included in house prices. After all, if prices rise a lot, they will be able to scare away the target audience of the company. This can be considered a plus, since the labor market will not be so merciful to the company - and the cost of labor, most likely, will grow.

The question of costs is important because, what the company pays 80 cents per share per year. On 0,91% annually takes about 288 million dollars a year. Although it is only 7,84% from the company's profits for the past 12 months and no apparent reason to cut payments. These reasons can appear very quickly., if the company's costs rise strongly. However, DR Horton shareholders are unlikely to sell shares in case of cut payments.

Обзор dr horton: как себя чувствуют американские строительные компании

Обзор dr horton: как себя чувствуют американские строительные компании

Resume

DR Horton looks like a very good option for, to invest in the American construction industry. But here it is better to focus on the long term., to 5 years, or even more, as much can change over short distances. Home demand may fall, and the construction costs of the company can rise dramatically. For long periods of time, such troubles will not feel so painful., and the company will be able to realize its competitive advantages: relatively budget price plus dominant positions in the hottest regional markets.

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