Can D.R. Horton (DHI) Spring A Surprise In Q4 Earnings?

D.R. Horton Inc. (NYSE:DHI) is scheduled to report fourth-quarter fiscal 2016 results on Nov 8, before the opening bell.

Last quarter, the company’s earnings met expectations. Also, the company surpassed estimates in three out of the past four quarters, resulting in an average positive surprise of 3.47%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

D.R. Horton expects to deliver a strong performance in the fourth quarter of fiscal 2016 on the back of its robust backlog position and well-stocked inventory of land, lots and homes. The company’s order trends remain solid for the past few quarters, a trend which is expected to continue in the soon-to-be reported quarter. Management expects investments in land and development to increase in the fourth quarter from year-ago levels.

However, the company expects the average sales price of homes closed to be around $2,90,000 in the quarter, which is lower than the third quarter’s closing price. Though the company is seeing better-than-expected demand trends and absorption levels for the lower priced Express brand of homes, the higher proportion of these homes in home closings is hurting selling prices.

That said, despite a slight decrease in active selling communities in the third quarter, net sales orders rose 13% to 11,714 homes on continued improvement in sales. Meanwhile, the higher absorption rates of the affordable Express-branded homes are driving overall sales. Also, in the quarter, orders increased across all the operating regions. The value of net orders grew 14% to $3.4 billion.

For the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 77 cents, reflecting a 20.4% year-over-year increase. Meanwhile, our estimate for revenues is pegged at $3.67 billion, implying a 15.6% rise.

Earnings Whisper

Our proven model does not conclusively show that D.R. Horton is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: D.R. Horton’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 77 cents.

Zacks Rank: D.R. Horton’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Peer Releases

Louisiana-Pacific Corporation (NYSE:LPX) reported adjusted earnings per share of 32 cents in the third quarter of 2016, missing the Zacks Consensus Estimate of 39 cents by 17.95%.

Vulcan Materials Company’s (NYSE:VMC) third-quarter 2016 adjusted earnings of $1.01 per share lagged the Zacks Consensus Estimate of $1.12 by 9.8%.

Martin Marietta Materials, Inc.'s (NYSE:MLM) third-quarter 2016 adjusted earnings per share of $2.49 missed the Zacks Consensus Estimate of $2.64 by about 5.7%.

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