Why D.R. Horton Stock Was Rising This Week

Key Points

• D.R. Horton reported better-than-expected results in its third-quarter earnings report.

• The company expects to repurchase about 10% of its shares outstanding this year.

• Mortgage rates are likely to remain elevated, putting pressure on homebuilders.

• 10 stocks we like better than D.R. Horton ›

Shares of D.R. Horton (NYSE: DHI) were moving higher this week after the nation's largest homebuilder reported better-than-expected results in its fiscal third-quarter earnings report, despite continued pressure on the housing market, weak consumer sentiment, and elevated mortgage rates.

As of Thursday, at 1:10 p.m. ET, D.R. Horton stock was up 10.1% for the week, according to data from S&P Global Market Intelligence.

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D.R Horton surprises the market

Homebuilders might have an advantage over real estate agencies in the current housing market, as the national housing shortage has led to demand for new homes, but growth has still been challenging in the industry due to high mortgage rates.

Against that backdrop, D.R. Horton a 7% decline in revenue to $9.2 billion, ahead of the consensus at $8.8 billion. Homes closed fell 4% in the quarter to 23,160, ahead of its guidance, and sales orders were flat year over year and up 3% sequentially, a positive sign.

Further down the income statement, the company reported a gross margin of 21.8% and earnings per share of $3.36, which was down from $4.10 in the quarter a year ago, but benefited from a reduction in shares outstanding of 8%. That result was also better than estimates at $2.90.

Management acknowledged that demand is being "impacted by ongoing affordability constraints and cautious consumer sentiment." Its sales incentives have remained elevated in order to drive purchasing, which explains the decline in profits.

What's next for D.R. Horton?

Interest rates seem unlikely to change in the near term, which will continue to put pressure on the stock, but those factors seem to be priced into the stock.

For the full year, the company narrowed its revenue guidance to $33.7 billion-$34.2 billion, and it's targeting share buybacks of $4.2 billion-$4.4 billion. With buybacks at that pace, the stock looks like a reasonable buy, even if profits remain flat.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends D.R. Horton. The Motley Fool has a disclosure policy.