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DHI or LEN: Which Housing Bigwig Has More Potential in 2024?
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In 2023, stocks of homebuilders experienced a significant surge, and this upward momentum is anticipated to persist throughout 2024, despite apprehensions regarding elevated mortgage rates and affordability challenges. Homebuilding companies have consistently revealed impressive quarterly results, expressing optimism about the growth of new orders and deliveries in the upcoming quarters.
In fact, the Federal Reserve's decision to maintain interest rates at a 22-year high of 5.25-5.5% brings optimism to the housing market. The Federal Open Market Committee hints at potential rate cuts by the end of 2024. This stability provides relief for companies like D.R. Horton, Inc. (DHI - Free Report) , Lennar Corporation (LEN - Free Report) , Dream Finders Homes, Inc. (DFH - Free Report) , PulteGroup, Inc. (PHM - Free Report) and others. Home prices and borrowing rates are expected to find equilibrium, addressing the demand-supply gap resulting from significant underbuilding over the last decade and homeowners' reluctance to abandon low-rate mortgages.
Given the current scenario, quality homebuilding stocks could offer a safe haven because of their stability and the fact that these are fundamentally strong enough to withstand the industry woes. The Zacks Building Products - Home Builders industry currently carries a Zacks Industry Rank #56, which places it in the top 22% of more than 250 Zacks industries.
Among the industry bellwethers, D.R. Horton and Lennar are the most prominent ones. At present, the market capitalization of D.R. Horton is $49.27 billion, while that of Lennar stands at $40.96 billion. Both D.R. Horton and Lennar currently carry a Zacks Rank #3 (Hold).
Before drawing a head-to-head comparison between DHI and LEN, let’s check out a few key statistics of the companies.
What Defines These Homebuilders?
D.R. Horton offers a diverse line of homes across various price points through a multi-brand platform like D.R. Horton, Emerald Homes, Express Homes and Freedom Homes. Moreover, the company enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. It has a strong presence in 118 markets across 33 states across the United States. With a record 89,092 homes closed by its homebuilding and single-family rental operations in fiscal 2023, D.R. Horton completed its 22nd consecutive year as the largest homebuilder in the United States.
During the fourth quarter of fiscal 2023, net sales orders rose 39% year over year to 18,939 homes. The value of net orders also increased 34% year over year to $7.3 billion.
Conversely, Lennar operates as a homebuilder primarily under the Lennar brand in the United States, targeting first-time, move-up, and active adult homebuyers. The company provides mortgage financing and related services to customers through the financial services segment.
Lennar’s core homebuilding results remained resilient in fiscal 2023. Lennar’s solid operating strategy of focusing on production and sales pace over price, generating strong cash flow, increasing returns on equity and assets and driving a robust bottom line bode well.
Stock Performance
Image Source: Zacks Investment Research
DHI and LEN have gained 42.6% and 34.1%, respectively, over the past three months. The industry has collectively gained 36.9% during the period. DHI fared much better than LEN on this front.
Earnings Growth Rate & Surprises
The ability to consistently boost profit levels and defy industry woes is a defining characteristic of the best companies. Analysts expect DHI’s earnings to grow 2.5% in fiscal 2024. Comparatively, LEN’s earnings are expected to grow 0.8% over the same time frame. Hence, DHI’s higher growth rate implies a greater potential for capital appreciation.
Earnings estimates have increased 1.4% for DHI but decreased 2.4% for LEN over the past 60 days.
Meanwhile, considering earnings history, DHI and LEN both surpassed estimates in all the last four quarters, delivering average earnings surprises of 28.9% and 21.7%, respectively.
Valuation
The industry is clearly undervalued than the S&P 500, with respect to the forward 12-month price-to-earnings (P/E) ratio. This implies that the industry has upside potential for the near future. The industry has an average forward 12-month P/E ratio of 10.7, which is below the S&P 500’s average of 20.5. Hence, it might be a good idea to focus on stocks belonging to this particular industry.
Coming to the two stocks under consideration, DHI and LEN — with a 12-month forward P/E ratio of 10.3 and 10, respectively — are undervalued than the S&P 500 and the industry.
Comparing the two stocks, LEN is less pricey than DHI.
Returns
Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE in the trailing 12 months for DHI is 21.9%. LEN’s trailing 12-month ROE is 15.8%. Markedly, DHI provides more impressive returns to investors than LEN and the industry’s 18.2%.
Bottom Line
Currently, D.R. Horton’s industry-leading market share, solid acquisition strategy, well-stocked supply of land, lots and homes, along with affordable product offerings across multiple brands and strong operational performance, make it a better housing pick than Lennar. Especially in terms of share price performance, earnings growth rate and returns, D.R. Horton has more upside potential than Lennar in 2024.
A Brief Overview of the Other Two Stocks
Dream Finders Homes currently sports a Zacks Rank #1 (Strong Buy). This Jacksonville, FL-based homebuilder has been benefiting from the strategy to focus on managing construction times and increasing inventory turnover. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes’ earnings per share (EPS) estimates for 2024 have increased to $2.51 from $2.38 over the past 30 days. Shares of DHF have gained 58.7% over the past three months.
PulteGroup currently carries a Zacks Rank #2 (Buy). The company is benefiting from its operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
PulteGroup’s EPS estimates for 2024 have increased to $11.37 from $11.33 over the past 30 days. Shares of PHM have gained 39.8% over the past three months.
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DHI or LEN: Which Housing Bigwig Has More Potential in 2024?
In 2023, stocks of homebuilders experienced a significant surge, and this upward momentum is anticipated to persist throughout 2024, despite apprehensions regarding elevated mortgage rates and affordability challenges. Homebuilding companies have consistently revealed impressive quarterly results, expressing optimism about the growth of new orders and deliveries in the upcoming quarters.
In fact, the Federal Reserve's decision to maintain interest rates at a 22-year high of 5.25-5.5% brings optimism to the housing market. The Federal Open Market Committee hints at potential rate cuts by the end of 2024. This stability provides relief for companies like D.R. Horton, Inc. (DHI - Free Report) , Lennar Corporation (LEN - Free Report) , Dream Finders Homes, Inc. (DFH - Free Report) , PulteGroup, Inc. (PHM - Free Report) and others. Home prices and borrowing rates are expected to find equilibrium, addressing the demand-supply gap resulting from significant underbuilding over the last decade and homeowners' reluctance to abandon low-rate mortgages.
Given the current scenario, quality homebuilding stocks could offer a safe haven because of their stability and the fact that these are fundamentally strong enough to withstand the industry woes. The Zacks Building Products - Home Builders industry currently carries a Zacks Industry Rank #56, which places it in the top 22% of more than 250 Zacks industries.
Among the industry bellwethers, D.R. Horton and Lennar are the most prominent ones. At present, the market capitalization of D.R. Horton is $49.27 billion, while that of Lennar stands at $40.96 billion. Both D.R. Horton and Lennar currently carry a Zacks Rank #3 (Hold).
Before drawing a head-to-head comparison between DHI and LEN, let’s check out a few key statistics of the companies.
What Defines These Homebuilders?
D.R. Horton offers a diverse line of homes across various price points through a multi-brand platform like D.R. Horton, Emerald Homes, Express Homes and Freedom Homes. Moreover, the company enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. It has a strong presence in 118 markets across 33 states across the United States. With a record 89,092 homes closed by its homebuilding and single-family rental operations in fiscal 2023, D.R. Horton completed its 22nd consecutive year as the largest homebuilder in the United States.
During the fourth quarter of fiscal 2023, net sales orders rose 39% year over year to 18,939 homes. The value of net orders also increased 34% year over year to $7.3 billion.
Conversely, Lennar operates as a homebuilder primarily under the Lennar brand in the United States, targeting first-time, move-up, and active adult homebuyers. The company provides mortgage financing and related services to customers through the financial services segment.
Lennar’s core homebuilding results remained resilient in fiscal 2023. Lennar’s solid operating strategy of focusing on production and sales pace over price, generating strong cash flow, increasing returns on equity and assets and driving a robust bottom line bode well.
Stock Performance
Image Source: Zacks Investment Research
DHI and LEN have gained 42.6% and 34.1%, respectively, over the past three months. The industry has collectively gained 36.9% during the period. DHI fared much better than LEN on this front.
Earnings Growth Rate & Surprises
The ability to consistently boost profit levels and defy industry woes is a defining characteristic of the best companies. Analysts expect DHI’s earnings to grow 2.5% in fiscal 2024. Comparatively, LEN’s earnings are expected to grow 0.8% over the same time frame. Hence, DHI’s higher growth rate implies a greater potential for capital appreciation.
Earnings estimates have increased 1.4% for DHI but decreased 2.4% for LEN over the past 60 days.
Meanwhile, considering earnings history, DHI and LEN both surpassed estimates in all the last four quarters, delivering average earnings surprises of 28.9% and 21.7%, respectively.
Valuation
The industry is clearly undervalued than the S&P 500, with respect to the forward 12-month price-to-earnings (P/E) ratio. This implies that the industry has upside potential for the near future. The industry has an average forward 12-month P/E ratio of 10.7, which is below the S&P 500’s average of 20.5. Hence, it might be a good idea to focus on stocks belonging to this particular industry.
Coming to the two stocks under consideration, DHI and LEN — with a 12-month forward P/E ratio of 10.3 and 10, respectively — are undervalued than the S&P 500 and the industry.
Comparing the two stocks, LEN is less pricey than DHI.
Returns
Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE in the trailing 12 months for DHI is 21.9%. LEN’s trailing 12-month ROE is 15.8%. Markedly, DHI provides more impressive returns to investors than LEN and the industry’s 18.2%.
Bottom Line
Currently, D.R. Horton’s industry-leading market share, solid acquisition strategy, well-stocked supply of land, lots and homes, along with affordable product offerings across multiple brands and strong operational performance, make it a better housing pick than Lennar. Especially in terms of share price performance, earnings growth rate and returns, D.R. Horton has more upside potential than Lennar in 2024.
A Brief Overview of the Other Two Stocks
Dream Finders Homes currently sports a Zacks Rank #1 (Strong Buy). This Jacksonville, FL-based homebuilder has been benefiting from the strategy to focus on managing construction times and increasing inventory turnover. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes’ earnings per share (EPS) estimates for 2024 have increased to $2.51 from $2.38 over the past 30 days. Shares of DHF have gained 58.7% over the past three months.
PulteGroup currently carries a Zacks Rank #2 (Buy). The company is benefiting from its operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
PulteGroup’s EPS estimates for 2024 have increased to $11.37 from $11.33 over the past 30 days. Shares of PHM have gained 39.8% over the past three months.