DHI – Given management’s positive sentiment and overly bearish market expectations, upside remains warranted

• DR Horton Inc. (DHI:USA)currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 11.5x Uniform P/E. At these levels, the market is pricing in fairly bearish expectations for the firm. However, management is confident in their portfolio, revenue, and order pace, suggesting these expectations are unwarranted, and upside is likely justified
• Specifically, management generated an excitement marker when talking about their homebuilding lot portfolio, and are confident in the strong competitive advantage it gives them in the housing market. Additionally, management is confident in the sustainability of their increased backlog value and their lower SG&A costs. Moreover, they are confident in their ability to bring Forestar to the public markets, and in their ability to expand their footprint across the U.S. through additional acquisitions. Furthermore, they are confident in their ability to sustain elevated revenue levels and order pace. Given management’s positive sentiment, market expectations for Uniform ROA compression appear far too bearish, and as such, multiple expansion and equity upside continue to be warranted