DHI

Why Valuation (Still) Matters: The Homebuilders

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At Valuentum, our stock-selection methodology blends two long-time investing foes—value and momentum (click for why this combination is so powerful). For an idea to fit the profile of a ‘Valuentum stock’, it simply cannot just be undervalued, nor can it exclusively possess fantastic momentum and technical measures. The firm must have both characteristics and pass the qualitative muster of our analyst team to make the cut for addition to our actively-managed portfolios. We credit the Valuentum discipline as the major driver behind the significant outperformance in our portfolios. In addition to highlighting one of the biggest industry collapses during the year (the mREITs—click here) and perhaps the biggest alpha trade (stock up, market down) of the year (Apple recently), the Valuentum process … Read more

Positive US Housing Data Persists; The Recovery is Real

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Through the course of this week, we’ve received a number of positive data points suggesting the US housing recovery is well on its way. Long-time Valuentum members know that we’ve been very bullish on the housing turn since early 2012 (view the January 2012 edition of our Best Ideas Newsletter here). The S&P/Case-Shiller Index kicked off the week’s events with a 12% year-over-year price increase in the 20-city composite index for April (there’s a two month lag in the data). The 10-city index also rose 11.6% year-over-year. Both metrics have recovered to 2004 levels, but both remain well below the 2007 all-time (“bubble”) highs. Image Source: S&P Dow Jones Indices Image Source: S&P Dow Jones Indices We were also very … Read more

Why Valuation Matters: The Homebuilders

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Although the broader stock market sold off aggressively Thursday (the S&P 500 fell 2.5%), one industry was under particular pressure: the homebuilders. Shares of PulteGroup (click ticker for report: ), Lennar (click ticker for report: ), KB Home (click ticker for report: ), Toll Brothers (click ticker for report: ), DR Horton (click ticker for report: ), and Ryland (click ticker for report: ) all suffered declines of at least 5%. Homebuilding stocks have greatly benefitted from improving housing trends, but share prices had moved well ahead of the respective firms’ fundamentals. In our housing market industry overview released late May, we mentioned that homebuilding valuations looked particularly stretched. The group’s elevated prices coupled with the potential for the Federal … Read more

Toll Brothers’ Fourth Quarter Results Were Fantastic

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Tuesday morning, one of the nation’s premier homebuilders, Toll Brothers (click ticker for report: ) reported spectacular fourth quarter results. Revenues surged 48% year-over-year to $632.8 million, well ahead of consensus expectations. Earnings per share jumped to $2.35 per share from $0.09 a year ago thanks to the release of deferred tax assets. Pretax income jumped nearly 300% year-over-year to $60.7 million. Key metrics for Toll’s business were mostly strong across the board. Net signed contracts in the fourth quarter jumped 70% year-over-year to 1,098 units, with a 75% surge in value to $684.1 million. The firm’s backlog jumped 54% to 2,569 units, with the value of that backlog increasing 70% to $1.67 billion. Stronger pricing also helped gross margins … Read more

Jamie Dimon Agrees; Housing Is Back

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Since the turn of the year, the housing market has been on the mend (click here for when we spotted the recovery), and homebuilders have been posting excellent results as of late. At the end of July, we more definitively announced that we thought the US housing market was back, and subsequent results and commentary have strengthened our thesis. We plan to take a close look at our valuation models of a number of homebuilders today, but we don’t expect any companies’ share prices to fall outside of their updated fair value ranges, which we plan to release this afternoon. During the past several months, many US major banking institutions and mortgage originators have been posting fantastic results. Both JP Morgan Chase (click ticker … Read more

The US Housing Market Is Back

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The housing market in the United States has regained its footing and looks poised to rebound even further. First, on Thursday, PulteGroup (click ticker for report: PHM) reported better-than-expected second-quarter earnings, generated 15% revenue growth, and showed that its backlog grew 31% year-over-year on a unit basis. Then, on Friday, D.R. Horton’s (click ticker for report: DHI) fiscal third-quarter results revealed its backlog advanced 25% year-over-year. Plus, the firm reversed a tax-asset write-down, indicating the company expects increased profitability down the road. The strong performance from these two builders was preceded by solid results from other builders including KB Home (click ticker for report: KBH) and Lennar (click ticker for report: LEN). Though conventional wisdom may suggest a weak economic … Read more

D.R. Horton’s Fiscal Second-Quarter Results Speak to a Firming Housing Market; Its Cancellation Rate Drops to Pre-Crisis Levels

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D.R. Horton (), one of the largest homebuilders in the US, posted excellent fiscal 2012 second-quarter results that support our view that the domestic housing market is firming. Though we liked its performance, we still believe the homebuilding group is a bit ahead of itself as it relates to valuation, and we remain on the sidelines. We continue to prefer ancillary, diversified plays on the housing market via the two banking exchange-traded funds we hold in the portfolio of our Best Ideas Newsletter. << About Our Best Ideas Newsletter The statistics conveying D.R. Horton’s growth off “the bottom” were fairly impressive. Homebuilding revenue in its fiscal second quarter jumped 28% thanks to a more than 20% increase in homes that … Read more

Dividend Increases/Decreases for the Week of November 11

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Below we provide a list of firms that raised their dividends during the week ending November 11. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                A&W Revenue Royalties Income Fund (AW.UN:CA): now CAD 0.16 per share monthly dividend, was CAD 0.15. A10 (ATEN): now $0.06 per share quarterly dividend, was $0.05. AAON (AAON): now $0.24 per share semi-annual dividend, was $0.19. AFLAC (AFL): now $0.42 per share quarterly dividend, was $0.40. Arko Corp. (ARKO): now $0.03 per share quarterly dividend, was $0.02. Assurant (AIZ): now $0.70 per share quarterly dividend, … Read more

How to Think About Corporate Tax Reform

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