Sterne Agee CRT Upgrades DR Horton To Buy, Says This Was Bigger Catalyst Than Expected

• The share price of D.R. Horton, Inc. (NYSE: DHI) has appreciated 13.68 percent over the last year, reaching a high of $32.61 on December 29, 2015.
• Jay McCanless of Sterne Agee CRT has upgraded the rating on the company from Neutral to Buy, while raising the price target from $28 to $33.
• McCanless believes that D.R. Horton’s focus on entry level consumers coincides with a positive view on the buyer segment and that the company is the best positioned to serve the first timer market.

Analyst Jay McCanless mentioned that Express, the company’s pure entry level product, has grown from 4 percent of units closed in F1Q14 to 21 percent of units closed in F4Q15, while orders grew from 3 percent to 22 percent during the same period.

D.R. Horton expects Express to grow to 20 percent of revenues by the end of FY16, with the geographic rollout of the brand having mostly being completed by end of FY16 as well.

In addition, McCanless stated that the FHA’s insurance premium cut in January 2015 was a bigger than anticipated catalyst for entry level buyers.

According to the Sterne Agee CRT report, “Since FHA financing is the only choice for many first-time buyers, we believe DHI's targeted focus on the entry-level buyer starting in late 2013 was a perfectly timed strategy shift.”

D.R. Horton is scheduled to reports its F1Q16 earnings on January 25. McCanless expects the company to report an 8.4 percent year on year growth in housing revenues and a 4 percent year-on-year increase in average closing price, with 4.3 percent increase in unit closings.