DHI D. R. Horton
Best-in-class builder priced for margin recovery; value hinges on how far margins normalize.
The story
D. R. Horton is the largest US homebuilder by volume, with scale advantages in land procurement, cost, and a lot-light model via Forestar that lets it turn inventory faster than peers. It is a mature, cyclical business: revenue has been flat for five years while margins have fallen from a 22.6% post-pandemic peak toward about 11% as incentives and mortgage-rate buydowns absorbed affordability pressure. The long-run tailwind is a structural US housing shortage; the near-term reality is a mid-cycle margin reset.
Margins recover from the 11.4% trough to a through-cycle 15%, above pre-pandemic levels (about 13%) because of scale and share gains, but well below the 2022 peak. Sales-to-capital improves modestly from 1.11 as the lot-option model frees capital. Beta of 1.2 sits above the anchor to reflect housing's rate sensitivity, and the 7-year horizon reflects a scale leader in a mature industry, not a durable moat.
Value drivers
| Revenue growth (Y1) | 2.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 7y |
| Target operating margin | 15.0% |
| Years to target margin | 4 |
| Sales-to-capital | 1.30 |
| Beta | 1.20 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.9% |
| Terminal WACC | 9.1% |
Valuation bridge
| PV of explicit FCFF | 15.82B |
| PV of terminal value | 27.14B |
| Equity value | 39.04B |
| ÷ shares → per share | $139.57 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 34.02B | 2.0% | 12.3% | 3.20B | 513.08M | 2.69B | 2.45B |
| 2 | 34.75B | 2.2% | 13.2% | 3.51B | 566.95M | 2.94B | 2.43B |
| 3 | 35.56B | 2.3% | 14.1% | 3.83B | 623.79M | 3.21B | 2.42B |
| 4 | 36.45B | 2.5% | 15.0% | 4.18B | 683.94M | 3.49B | 2.39B |
| 5 | 37.43B | 2.7% | 15.0% | 4.29B | 747.77M | 3.54B | 2.21B |
| 6 | 38.49B | 2.8% | 15.0% | 4.41B | 815.70M | 3.59B | 2.04B |
| 7 | 39.64B | 3.0% | 15.0% | 4.54B | 888.15M | 3.65B | 1.89B |
Key risks
- Mortgage rates stay high and incentives keep compressing gross margins
- Land and labor cost inflation outpaces home price growth
- A housing downturn triggers inventory impairments on a capital-heavy balance sheet
Catalysts
- Fed rate cuts that lower mortgage rates and reduce the need for buydowns
- Continued buybacks and share gains from smaller builders squeezed on financing