Should I Buy DR Horton (DHI)? Finance YouTuber Analysis

Stanley Druckenmiller is increasing his position in D.R. Horton, another major US homebuilder. The investment is based on the expectation of declining interest rates, which is predicted to boost the real estate and construction sectors.

“Estas son dos de las principales constructoras de Estados Unidos, también un poco en anticipo de que van a bajar los tipos porque él se mueve mucho por la macro y eso va a animar mucho el sector inmobiliario de constructoras y está cargando la cartera de este tipo de de inversiones”

The YouTuber finds DR Horton a potentially good investment, despite initial skepticism about the housing market. He notes that new homes are a primary option due to high mortgage rates trapping existing homeowners, and highlights the company's strong revenue, margins, and debt-to-assets ratio. Analysts also project a significant upside, with one Bank of America analyst suggesting over 100%.

“Overall this was a bit of a shock for me but in researching it I feel that it might be a good investment for myself”

DR Horton, the largest homebuilder, is recommended for its 13% earnings yield. Despite higher mortgage rates slowing sales, demand and prices are holding up due to a massive housing shortage (6.5 million single-family homes). Management's guidance for flat revenue in 2023 and a $1 billion share buyback program further support the investment, even in a tough environment.

“that's going to mean even as the housing market cools further DR Horton will still see demand for new construction”

The YouTuber recommends DR Horton due to its strong market share in key regions and its ability to maintain demand despite a cooling housing market, supported by a significant housing shortage. The company is guiding for flat revenue in 2023, but generates substantial free cash flow and has a share buyback program, leading to a 13% earnings yield.

“DR Horton will still see demand for new construction management is guiding to as much as 33 billion dollars in 2023 Revenue flat from last year but impressive in this kind of tough environment even on that no growth scenario the company generates over 1.4 billion dollars in free cash flow and has announced a one billion dollar share buyback program that will support earnings per share the 0.93 dividend yield isn't much of a cash return but that 13 total earnings yield is one you want to watch”

The analyst suggests avoiding DR Horton in the short term due to significant risks in the homebuilding sector. Despite the stock trading at six times earnings, new home orders are down 38% and gross margins are expected to decline, potentially impacting profitability. The stock has also largely recovered from recent lows, suggesting that current risks may not be fully priced in.

“I'll be blunt with you with I think there's still a lot of risk for home builders and it's going to be a weak year and I'm not sure that's fully priced at”