An update has been released on building construction company D.R. Horton (DHI), in which Zacks infrastructure industry analyst Mario Ricchio opines that investors should Hold the shares of the company. We excerpted the following details:
'D.R. Horton, Inc. reported fourth quarter EPS of $0.60, above our estimate of $0.23, due to higher-than-expected gross margins. Even though gross margins beat our expectations and were higher sequentially, this was driven by a lower-than-anticipated 7% decline in selling prices on closed homes. When looking at fourth quarter net sales orders that translate into home closings in the next couple of quarters, average selling prices fell 15.6%.
'Hence, we expect further price erosion and heightened incentive use to renew pressure on first quarter 2008 gross margins. Given DHI shares trade at 0.59 times book value, the stock appears to have priced in a worst case scenario. We reiterate our Hold recommendation on shares of DHI with a target price of $11.00 per share. D.R. Horton trades at a P/E multiple of 23.5x our depressed FY08 EPS estimate of $0.45 and at a book value of only 0.5.
'Typically, homebuilders tend to bottom with book values near 1. Consequently, we believe the shares are pricing in more risk than they have in the last couple of years. As such, we recommend investors hold shares of DHI through the downturn and earn a dividend yield of 5.67% in the process. Applying a P/E multiple of around 24.4x to our FY08 EPS estimate of $0.45, we derive a target price of $11.00 per share.'
Read the full analyst report on DHI.
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