Two homebuilders – Pulte (PHM) and DR Horton (DHI) – have sold off on earnings in the last week and my analysis of their reports suggests the sector is fully valued.
Let’s start with the bigger one – DHI. With a market cap over $50 billion, DHI is the largest publicly traded homebuilder – closely followed by Lennar (LEN) with a market cap of $45 billion. DHI reported 4QFY24 earnings Tuesday morning and the market has sent the stock down 10% in response. Why?
I believe the reason is that DHI’s FY25 guidance suggests that this is as good as it gets for the homebuilders. DHI closed 89,690 homes in FY24 resulting in revenue of $36.8 billion. Their FY25 forecast calls for closing 90,000-92,000 homes resulting in revenue of $36.0-$37.5 billion. In other words, FY25 is expected to be essentially flat with FY24. Without any growth going forward, the stock appears fully valued to me.
PHM – with a $27 billion market cap – reported 3Q24 earnings last Tuesday morning. Like DHI, PHM sold off in response to earnings because New Orders have flattened out over the last two quarters. As with DHI, if there is no growth going forward, PHM looks fully valued.
The homebuilders have had a phenomenal run over the last two years but all good things must come to an end. It’s probably time to take profits…..