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On Wednesday, Citi analyst adjusted the price target for D.R. Horton (NYSE:DHI) stock, bringing it down slightly to $151.00 from the previous $152.00, while keeping a Neutral stance on the shares. Analyst noted that D.R. Horton's shares fell by 2.7% in contrast to the S&P 500's gain of 0.9%, even after the company reported a strong first fiscal quarter. The quarter was highlighted by increased home closings and reduced cycle times.
The analyst expressed concerns over the homebuilder's second fiscal quarter gross margin (GM) guidance, which was set lower than anticipated, ranging between 21.5% and 22.0% compared to the consensus of 22.6%.
D.R. Horton observed a sequential decline in GM throughout the first fiscal quarter and reported elevated incentive levels in December, which are expected to continue into the second fiscal quarter. This guidance comes despite the company maintaining strong operational metrics, including a healthy current ratio of 5.89 and moderate debt levels. InvestingPro analysis reveals 12 additional key insights about D.R. Horton's financial position and market outlook.
Moreover, the company's pre-tax margin guidance for the consolidated second fiscal quarter was below expectations, coming in at 13.7% to 14.2% versus the consensus of 15.4%. This miss was partly attributed to margin pressures within D.R. Horton's rental business. As a result, Citi has revised downward the earnings estimates for fiscal years 2025 to 2027 to reflect the updated assumptions on homebuilding gross margin and rental profitability.
Despite these adjustments, the analyst acknowledged that D.R. Horton is performing well operationally, maintaining a P/E ratio of 10.43 and delivering impressive dividend growth of 33.33% over the past year.
Analyst pointed out that affordability challenges persist as the company approaches the spring selling season. The unchanged 1.8x next twelve months tangible book value (NTM TBV) multiple applied to the updated estimates resulted in the new $151 price target.
According to InvestingPro's Fair Value analysis, the stock appears undervalued at current levels, though seven analysts have recently revised their earnings expectations downward. The analyst concluded with a continued Neutral recommendation on D.R. Horton stock. Discover comprehensive valuation metrics and 14 additional ProTips with an InvestingPro subscription.
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