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DHI Tanks Despite Beat: How to Treat Housing ETFs?
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D.R. Horton (DHI - Free Report) , one of the biggest and well-known homebuilders in the nation, came up with upbeat fiscal second-quarter 2017 results on April 20 before the bell. Both earnings and revenues beat the Zacks Consensus Estimate (read: Is Spring Selling Season Opening Room for Housing ETFs?).
However, lower-than-expected guidance couldn’t do justice to the company’s Q2 outperformance. Shares fell about 3.2% in the two trading sessions (as of April 21, 2017) post earnings release.
Let’s take a look inside the headline numbers:
The company reported earnings of $0.60 per share, beating the Zacks Consensus Estimate of $0.59 by 1.7%. Earnings grew 15.4% year over year driven by higher home sales. Total revenue (homebuilding and financial services) of $3.25 billion came ahead of the Zacks Consensus Estimate of $3.09 billion by 5.2%. Total revenue also rose 17.5% year over year.
Homebuilding revenues rose 17% year over year. Home sales increased 17.6% year over year thanks to higher home deliveries. Home closings leapt 15%. The company reported growth across all the regions consisting of East, Midwest, Southeast, South Central, Southwest and West.
Outlook
The company projected total revenue in the range of $13.6–$14 billion versus the prior expectation of $13.4–$13.8 billion. As per an article published on barrons.com, the guidance was below the consensus estimate of $13.84 billion.
The article on barrons went on to explain that “investors are worried that that sales forecast implies a slowdown in the second half of the year, a fact that management blamed on difficult comparable sales.”
Another report from Wedbush indicated (as reported by barrons.com) that “DHI is partially offsetting input cost hikes with incremental price increases, but with some input costs (lumber, cement and copper) up 20% to 40% Y/Y……[their] gross margin estimate of 19.8% is slightly below management’s gross margin guidance for approximately 20%.” Probably this is why, DHI stock a took a beating despite strong Q2 earnings results.
Market & ETF Impact
The subtle bearishness over such an important homebuilding stock may cause a slack in the housing ETFs over the coming days. However, overall developments of the housing sector and the Fed move on policy tightening are also important in deciding the fate of these ETFs (read: Best ETFs & Stocks from Top Sectors of Q1).
Investors should also note that the sector is well-positioned from the Zacks rank point of view having been in the top 25%. Zacks Industry Rank of the stock is in the top 20%. DHI has a Zacks Rank #3 (Hold) with a VGM (Value-Growth-Momentum) score of A.
Housing ETFs mainly include SPDR S&P Homebuilders ETF (XHB - Free Report) and iShares U.S. Home Construction ETF (ITB - Free Report) . DHI takes first spot in the 44-stock ITB with an 11.76% weight and fifteenth position in the 37-stock XHB with 4.38% exposure.
In a nutshell, investors who want to bet big on the optimism surrounding the housing sector but worried about the slightly dull DHI guidance, may easily take the ETF route for investing. This is because a basket approach always safeguards investors from stock-specific volatility. ITB was down about 0.5% in the last two days (as of April 21, 2017), while XHB was up 0.6% in the same time frame.
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DHI Tanks Despite Beat: How to Treat Housing ETFs?
D.R. Horton (DHI - Free Report) , one of the biggest and well-known homebuilders in the nation, came up with upbeat fiscal second-quarter 2017 results on April 20 before the bell. Both earnings and revenues beat the Zacks Consensus Estimate (read: Is Spring Selling Season Opening Room for Housing ETFs?).
However, lower-than-expected guidance couldn’t do justice to the company’s Q2 outperformance. Shares fell about 3.2% in the two trading sessions (as of April 21, 2017) post earnings release.
Let’s take a look inside the headline numbers:
The company reported earnings of $0.60 per share, beating the Zacks Consensus Estimate of $0.59 by 1.7%. Earnings grew 15.4% year over year driven by higher home sales. Total revenue (homebuilding and financial services) of $3.25 billion came ahead of the Zacks Consensus Estimate of $3.09 billion by 5.2%. Total revenue also rose 17.5% year over year.
Homebuilding revenues rose 17% year over year. Home sales increased 17.6% year over year thanks to higher home deliveries. Home closings leapt 15%. The company reported growth across all the regions consisting of East, Midwest, Southeast, South Central, Southwest and West.
Outlook
The company projected total revenue in the range of $13.6–$14 billion versus the prior expectation of $13.4–$13.8 billion. As per an article published on barrons.com, the guidance was below the consensus estimate of $13.84 billion.
The article on barrons went on to explain that “investors are worried that that sales forecast implies a slowdown in the second half of the year, a fact that management blamed on difficult comparable sales.”
Another report from Wedbush indicated (as reported by barrons.com) that “DHI is partially offsetting input cost hikes with incremental price increases, but with some input costs (lumber, cement and copper) up 20% to 40% Y/Y……[their] gross margin estimate of 19.8% is slightly below management’s gross margin guidance for approximately 20%.” Probably this is why, DHI stock a took a beating despite strong Q2 earnings results.
Market & ETF Impact
The subtle bearishness over such an important homebuilding stock may cause a slack in the housing ETFs over the coming days. However, overall developments of the housing sector and the Fed move on policy tightening are also important in deciding the fate of these ETFs (read: Best ETFs & Stocks from Top Sectors of Q1).
Investors should also note that the sector is well-positioned from the Zacks rank point of view having been in the top 25%. Zacks Industry Rank of the stock is in the top 20%. DHI has a Zacks Rank #3 (Hold) with a VGM (Value-Growth-Momentum) score of A.
If this was not enough, existing-home sales touched a 10-year high in March. So, these impressive figures may call for sound trading of housing ETFs in the coming days (read: 4 Sector ETFs Defying 10-Month Low Job Gains in March).
Housing ETFs mainly include SPDR S&P Homebuilders ETF (XHB - Free Report) and iShares U.S. Home Construction ETF (ITB - Free Report) . DHI takes first spot in the 44-stock ITB with an 11.76% weight and fifteenth position in the 37-stock XHB with 4.38% exposure.
In a nutshell, investors who want to bet big on the optimism surrounding the housing sector but worried about the slightly dull DHI guidance, may easily take the ETF route for investing. This is because a basket approach always safeguards investors from stock-specific volatility. ITB was down about 0.5% in the last two days (as of April 21, 2017), while XHB was up 0.6% in the same time frame.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>