--- title: "DHI Q2 2025" author: "DeepValues Research" publisher: "DeepValues Research (DeepValues / LuLu Ventures LLC)" type: "Research article" ticker: "DHI" company: "D.R. Horton" sector: "Consumer Cyclical" industry: "Residential Construction" wikidata: "https://www.wikidata.org/wiki/Q5203782" wikipedia: "https://en.wikipedia.org/wiki/D._R._Horton" date: "2026-02-19" language: "en" section: "Company Research" canonical_url: "https://research.deepvalues.ai/company/dhi/dhi-q2-2025/" markdown_url: "https://research.deepvalues.ai/company/dhi/dhi-q2-2025/index.md" license: "CC BY 4.0" license_url: "https://creativecommons.org/licenses/by/4.0/" cite_as: "DeepValues Research, DHI Q2 2025, https://research.deepvalues.ai/company/dhi/dhi-q2-2025/" publisher_url: "https://deepvalues.ai" app: "https://deepvalues.ai" api: "https://app.deepvalues.ai/developers" data_note: "Reports are dated snapshots. Current data via the DeepValues API: https://app.deepvalues.ai/developers" disclaimer: "Educational research, not investment advice." --- **Disclaimer**: This content reflects the views of the author(s) as of the date indicated and is for educational and informational purposes only. It is not investment advice. Do your own due diligence with a licensed financial advisor before making any investment decisions. ## **Latest Quarter Earnings Summary** D.R. Horton's fiscal Q3 2025 (quarter ended June 30, 2025) delivered better-than-expected results. Net income was $1.03 billion, equating to **$3.36 per diluted share**, beating analyst estimates of $2.88 . However, earnings were down \~18% from the prior-year quarter's $4.10 EPS . Revenue for the quarter was **$9.23 billion**, slightly down 7.4% year-over-year amid softer housing demand . Notably, revenue still surpassed forecasts of $8.76 billion . Home sales gross margin held steady sequentially at **21.8%**, though down from 24.0% a year ago due to higher incentives offered to buyers . Elevated mortgage rates and inflation have made homes less affordable, so D.R. Horton increased incentives like interest rate buydowns and price reductions to stimulate sales . These incentives, while boosting sales, pressured margins and profits. Management narrowed full-year guidance to reflect resilient results. Fiscal 2025 revenue is now projected at **$33.7-34.2 billion** (midpoint roughly flat year-on-year), tightening the prior range of $33.3-34.8 billion . Expected home closings were revised to **85,000-85,500 homes** for FY2025, a slight narrowing from 85,000-87,000 . For the upcoming Q4 2025, revenue is guided at $9.1-9.6 billion (just below consensus of \~$9.68 billion) . Management also cautioned that sales incentives will likely **remain elevated or increase in Q4** depending on demand and mortgage rate trends . Overall, despite a challenging high-rate environment, D.R. Horton's Q3 results demonstrated solid execution - revenues and EPS beat expectations, and the company maintained strong volume through pricing adjustments. Shares jumped over 12% after earnings as investors took note of Horton's resilience and raised full-year outlook . ## **Business Model** **D.R. Horton's Core Business**: D.R. Horton is the largest homebuilder in the U.S., primarily building and selling single-family homes under multiple brands (D.R. Horton, Emerald for luxury, Express for entry-level, Freedom for active adult) . Homebuilding - the construction and sale of homes and lots - is by far the primary revenue source, accounting for over 90% of revenue . In FY2024, homebuilding contributed **92%** of consolidated revenue . The company also has smaller segments: a **financial services** arm (DHI Mortgage and title services) providing financing to \~70-80% of its homebuyers ; a majority-owned **Forestar** subsidiary engaged in land development (selling lots to D.R. Horton and others); and a growing **rental housing** portfolio (developing single-family rental communities). These ancillary businesses are relatively minor - e.g. in FY2024, rental operations were \~4-5% of revenues, Forestar \~4%, and financial services \~2% . The chart below shows the revenue breakdown in FY2024, illustrating the dominance of homebuilding: *Source: Company filings (FY2024 revenue by segment)* **Revenue Model**: Horton's income is generated by selling homes. It operates in 118 markets across 36 states , targeting a broad spectrum of buyers from entry-level to luxury. The company closed **89,690 homes in fiscal 2024**, an 8% increase from 82,917 in 2023 . In 2023, the average selling price of homes closed was around $378,000 . Home sales revenue was $31.6 billion in 2023 . Horton also closed **\~6,175 single-family rental homes** and **2,112 multi-family rental units** in 2023 as it expands its rental business . Over its 45-year history, D.R. Horton has delivered more than **1,000,000 homes** to customers - a testament to its scale. The company's financial services segment generated $882 million revenue in 2024 (primarily mortgage origination fees and title premiums) . Forestar (62%-owned) sold \~15,068 residential lots in 2024 (with \~13,267 sold to Horton) , contributing \~$1.5 billion revenue . Overall, Horton's vertically-integrated model - controlling land development through Forestar and providing in-house financing - supports its core homebuilding operations and adds incremental profit streams. **Customer Base**: As a homebuilder, D.R. Horton's "customers" are homebuyers. In 2024 it sold homes to nearly **90,000 families** - the highest volume of any U.S. builder . Its homes are mostly sold to owner-occupants (first-time and move-up buyers), rather than investors. Horton's scale and product breadth allow it to serve entry-level buyers (through Express brand), move-up buyers (D.R. Horton), luxury buyers (Emerald Homes), and 55+ buyers (Freedom Homes) . No single buyer accounts for a significant share of sales due to the retail nature - it's a very diversified customer base by default. That said, general economic factors affecting all homebuyers (like mortgage rates or job growth) directly impact demand for Horton's homes. Horton does sell some houses to its own rental division and occasionally bulk sales to rental investors, but the vast majority are individual retail sales. The company ended 2024 with a sales order backlog of 12,180 homes valued at $4.8 billion , which provides near-term revenue visibility. Importantly, D.R. Horton's use of **DHI Mortgage** to finance \~76% of its buyers in 2023 helps ensure customers can obtain loans and close on purchases . This integration smooths the customer experience (and brings Horton fee income). Horton's ability to deliver affordable homes is key - in 2023, it reported that **"affordable product offerings"** helped it capture demand even as interest rates rose . ## **Headwinds & Risks** **Short-Term Headwinds (1-2 years)**: The primary short-term challenge is the **high mortgage rate environment** and related dip in housing affordability. As the Federal Reserve raised interest rates sharply to combat inflation, 30-year mortgage rates climbed above 7%, pricing out many buyers . Horton notes that demand **"moderated"** in late 2022 and early 2023 as rates spiked and consumer sentiment became cautious . In response, builders (including Horton) increased buyer incentives - e.g. temporary rate buydowns, closing cost assistance, and price discounts - to spur sales . These incentives, while necessary to maintain volume, are a short-term drag on margins and profits . Another short-term risk is a potential **economic downturn or recession**. If the Fed's rate hikes slow the economy or raise unemployment, housing demand could weaken further in the near term . Supply-chain disruptions and building cost inflation (lumber, materials, labor) were headwinds in 2021-2022; those pressures have eased somewhat, but any resurgence could squeeze margins temporarily. Horton is also dealing with **cost inflation** (materials and labor rose \~5-10% in 2022), though in 2023 costs began stabilizing . On the political front, there are short-term risks like the potential for changes in government programs (e.g. FHA loan limits, mortgage interest tax deductions) that could temporarily affect buyer ability or incentives . Overall, the next year or two remain challenging due to **affordability constraints**, cautious consumer sentiment, and the possibility of an economic slowdown. **Long-Term Risks (Permanent or Structural)**: One structural concern is the **interest rate regime** - if the era of ultra-low rates is over and we sustain higher mortgage rates long-term, homeownership may be permanently less affordable for marginal buyers. Horton acknowledges that **"prolonged periods of elevated mortgage rates"** would adversely impact its business . Another long-term factor is **demographics**. Favorably, the U.S. has a large cohort of millennials now entering prime homebuying age, which supports housing demand. However, if birth rates remain low, future generations of first-time buyers could shrink. Additionally, **geographic shifts** (e.g. out-migration from high-cost states to Horton's Sunbelt markets) could alter regional demand - Horton's broad footprint gives it flexibility here . Regulatory and environmental trends pose risks too. Increasing **environmental regulations** on land development or building codes (for energy efficiency, etc.) could raise costs permanently . "No-growth" local zoning initiatives or lengthy permitting processes can restrict lot supply in some markets . Climate change may also introduce new building requirements (for resilience) or render some land (coastal, wildfire-prone) less viable for development long-term. Another long-term risk is the **cyclicality of housing** - historically, housing booms are followed by overbuilding and painful corrections. Horton tries to mitigate this with its optioned-land strategy (to avoid heavy land carrying costs), but an extreme downturn (like 2008's crash) is an ever-present risk in this industry. Finally, secular shifts in consumer preferences - for instance, if future generations delay homeownership or prefer renting indefinitely - could reduce structural demand for single-family homes. However, current evidence (undersupply of homes, strong desire for ownership among millennials) suggests the **long-term outlook for housing remains solid**, with analysts noting the U.S. is *underbuilt* relative to demographics . In sum, while cyclical swings are inevitable, Horton's biggest permanent risks would be anything that severely erodes housing affordability or fundamentally changes the American homeownership model. ## **Cost Structure** D.R. Horton's cost structure is dominated by the **direct costs of home construction** - land, labor, materials, and subcontracted services - which are accounted in "Cost of Sales" on the income statement. In 2023, Horton's cost of home sales was about 77-78% of homebuilding revenue, leaving a gross margin around 22-23% . These direct costs are largely **variable costs**: Horton generally acquires land (or lot options) for each community, then incurs material and subcontract labor costs as it builds each house . Major variable cost components include: **land acquisition and development**(typically \~20-25% of home sale price), **construction materials** (lumber, concrete, drywall, etc., \~30-35%), **labor/subcontractors** (framing crews, electricians, etc., \~25-30%), and **interest expense** which Horton capitalizes into inventory during construction . Horton's **fixed costs** are relatively low for its size, mainly corporate overhead and regional management. As of September 2023, the company had 13,450 employees , including \~9,190 in homebuilding operations (3,782 in construction supervision, 2,352 in sales, 3,056 office staff) and \~2,895 in financial services, with the rest at corporate, rental, and Forestar . Payroll for these staff and related administrative costs are part of **SG&A (Selling, General & Administrative) expense**, which was $2.24 billion in 2023 (about 7.1% of revenues) . SG&A includes semi-fixed costs like management salaries, sales office expenses, model home upkeep, and advertising. Notably, Horton's **advertising**expense was only $64.7 million in 2023 - a small fraction of revenue (0.18%), as the company relies more on website listings, local signage, and brokers than heavy ad campaigns . Another semi-fixed cost is **warranty and customer service**for completed homes (Horton provides a 10-year structural warranty), which is built into overhead and cost of sales estimates . **Cost per Home**: In 2023, the average selling price of a Horton home was \~$377k , and the average cost of construction and land was roughly $290k (yielding \~23% gross margin). This varies by market - e.g. Horton's average cost per home might be higher in high-cost states and lower in the South Central region. Land cost as a percent of selling price can range from \~20% in low-cost areas up to 30% in land-constrained markets. Vertical construction cost (materials & subcontracted labor) is the other major chunk; Horton benefits from national procurement (volume discounts on lumber, appliances, etc.) to keep unit costs down. **Significant Costs & Trends**: The largest cost buckets - land and building costs - tend to move with the housing cycle. During boom periods (e.g. 2021), raw material prices and land values climbed rapidly, pressuring builders' margins. For example, surging lumber and material costs in 2021-2022 contributed to Horton's average home cost rising faster than selling prices, compressing gross margin in 2023 by \~820 basis points . In lean times, Horton can negotiate better prices from suppliers/subs or purchase land at lower prices (often via Forestar or option contracts), which can improve margins when demand recovers. Labor cost is another key factor - Horton noted labor shortages in some markets during the 2018-2021 upcycle, which drove wages up. Now, with the housing market cooler, trade labor availability has improved, tempering labor cost inflation. **SG&A costs** are managed carefully relative to volume - Horton's SG&A as a % of revenue was 6.8-7.1% during 2022-2023 . It has a relatively lean overhead structure; during downturns, it has historically cut SG&A (through headcount and salary reductions or closing divisions) to preserve profitability. For instance, in the 2008-2011 downturn, Horton significantly reduced land spend and overhead, allowing it to remain mostly profitable. Another cost, **interest**, has been rising as rates increase - Horton's interest incurred was $151 million in 2023 (though all was capitalized to inventory since active construction exceeded debt) . If Horton's home inventory ever drops below debt levels, interest not capitalized would hit the P&L, but at present interest expense in earnings is minimal. Overall, **land and construction are the most significant costs**, comprising around 80% of home sales revenue . These costs are variable and move with volume and market conditions. In strong housing markets, Horton's higher volumes drive operating leverage (spreading fixed SG&A over more homes) and often better subcontractor productivity, expanding margins. In weak markets, it may face inventory impairments or need to offer price incentives that effectively raise cost of sales as a percentage of revenue. The company's long-term cost trend has been positive: gross margin averaged \~25-28% in the past decade, dipping to \~22-23% in 2023 amid heavy incentives , but management expects margins to normalize as conditions stabilize. The ability to adjust construction starts quickly and the use of optioned land (65%+ of lots controlled via options) gives Horton flexibility to manage costs in different economic conditions - it can slow land development and home starts to avoid accumulating high-cost inventory when demand softens . In summary, Horton's cost structure is largely variable and scalable, with land & construction costs dominating and relatively modest fixed overhead, which helped the company stay agile and profitable through cycles. ## **Management & Governance** **Executive Team & Board**: D.R. Horton's leadership has deep industry experience and long tenures. The company was founded by **Donald R. Horton** (Don Horton) in 1978, who led it for decades and served as Chairman until his sudden passing in May 2024 . His son David V. Auld, a 35-year company veteran, was CEO from 2014 and was appointed Executive Chairman in 2024 . Succeeding Auld as CEO is **Paul J. Romanowski** (formerly COO), who took the helm in October 2023. Romanowski has been with D.R. Horton for over 25 years and is known for a disciplined operating focus (he emphasized maintaining strong incentives to drive sales in recent calls) . The CFO is **Bill W. Wheat**, who has served in that role since 2003 - providing continuity in financial management . Such long tenures are common at Horton; in fact, the average executive tenure is \~30 years , reflecting a culture of promoting from within. The **Board of Directors** (11 members) includes founder Don Horton's family (his eldest son Michael is a director, and the Horton Family's \~6.7% stake aligns their interests) . The board has independent members with real estate and finance backgrounds, such as **Michael Buchanan** (former JPMorgan executive) and **Dr. Michael Williams** (former university president and mortgage finance expert). The board oversees strategy and capital allocation; notably, it authorized significant share repurchase programs in recent years (discussed below). **Management's Performance & Transparency**: Horton's management has a strong execution track record. They've consistently hit or exceeded stated goals such as community count growth and return on equity targets - for example, fiscal 2015 was their third straight year of 30%+ growth in revenues and pre-tax profit, as management had outlined aggressive post-recession recovery goals . CEO David Auld (2014-2023) was known for candid, no-frills communication on earnings calls. The company doesn't shy away from acknowledging market challenges: in late 2022, Auld openly discussed the need for pricing adjustments and incentives to adapt to higher rates . Horton's management generally doesn't "sugarcoat" issues - for instance, they disclosed in early 2023 that cancellation rates spiked to 32% in Q4 2022, and took quick action to re-price inventory. There haven't been notable scandals or instances of hiding problems; in fact, Horton was lauded for its risk management during the 2008 crash (they wrote down land early and raised capital, keeping the company solvent when many builders went bankrupt). Analysts often remark that Horton's team is **disciplined and fiscally conservative**, focusing on profitability over sheer volume. Management's interactions with stakeholders appear professional and straightforward. On earnings calls, executives answer analysts' questions directly and thoroughly. For example, in the Q3 2025 call, Romanowski detailed how incentives were affecting margins and affirmed they'd do "whatever it takes" to keep inventory turning - demonstrating willingness to sacrifice margin short-term for long-term health, which was well-received. Horton's leadership has also shown foresight in capital allocation - launching the Forestar lot development subsidiary to secure lot supply, and pivoting to build-to-rent homes when they saw institutional demand rising in 2019-2021. There have been no major integrity questions raised about current management. The company did face a historical controversy: a 2012 National Labor Relations Board case over arbitration agreements (eventually Horton prevailed at the Supreme Court in 2018) , but this was more about legal policy than management conduct. Overall, Horton's leaders are viewed as **experienced operators who navigate cycles well**. **Management Incentives & Shareholder Alignment**: The Horton family's stake (around 6-7% of shares via Horton Family Limited Partnership) aligns the founding family with shareholders . Donald Horton himself retained a large holding (worth \~$2.5 billion) until his death, and presumably his estate/family maintain that investment. Other top executives also own shares (per proxy filings, David Auld owns over 1 million shares, and Bill Wheat \~500k, though they also periodically sell some as part of compensation). Executive compensation is tied significantly to performance: annual bonuses are based on metrics like pre-tax income and return on equity, which has driven management to keep ROE high (over 20% in recent years) . The long-term equity awards vest based on total shareholder return relative to peers. This structure encourages management to focus on profitable growth and shareholder returns. Notably, during temporary stock price dips, insiders have sometimes increased holdings - e.g. founder Don Horton bought shares during downturns, and the company itself aggressively repurchased stock when it was undervalued (buybacks benefit execs as shareholders). The board's decision to initiate a dividend in 2014 (now $0.25/quarter) and steadily increase it shows a commitment to returning cash; however, the dividend yield remains modest (\~1%) because management favors using more cash for land and buybacks when growth opportunities abound. In summary, D.R. Horton's management and governance are considered a strong point. The team is **highly experienced**, has navigated multiple housing cycles, and has mostly treated investors transparently. Their interests are reasonably aligned with shareholders, partly via significant insider ownership and performance-based pay. The company's consistent strategy execution - such as achieving industry-leading scale while maintaining above-average profitability - reflects well on management's capability and integrity. ## **Shareholders & Capital Returns** **Ownership Structure**: D.R. Horton's ownership is majority institutional. **The Vanguard Group** is the largest shareholder, owning about 11.3% of shares . **BlackRock, Inc.** is second with \~10.5% . These passive asset managers hold for index funds and generally vote in line with management on routine matters. **State Street** and other institutions hold significant stakes as well . Notably, the **Horton family** (through Horton Family Ltd Partnership) owns \~6.7% - this is founder Don Horton's estate and family members, giving them substantial skin in the game. Insiders (executives and directors) collectively own around 8-9% of the company when including the Horton family stake. There are no activist investors or hedge funds with large positions; the shareholder base is mainly long-only mutual funds and index funds. According to Yahoo Finance, institutions in total own \~83% of DHI's float , indicating strong Wall Street interest. **Voting and Governance**: Given the large passive ownership, shareholder voting generally aligns with board recommendations. Top holders like Vanguard and BlackRock publish voting guidelines focused on long-term governance but rarely agitate publicly in companies without major controversies. There have been no recent contentious shareholder proposals for D.R. Horton. Typical matters (electing directors, approving auditor, executive pay say-on-pay) have passed comfortably. The Horton family's stake, while significant, is not a controlling stake, but it does give the family influence (they likely vote with management). The board's structure (independent majority) and staggered terms mean hostile takeovers or proxy fights are unlikely - plus, it's a $50B company, a tough target. In short, D.R. Horton's shareholders have largely been supportive, and there's been little drama in annual meetings. **Share Buyback Program**: D.R. Horton has actively repurchased stock in recent years as part of returning capital to shareholders. As of 2025, the company has a substantial **buyback authorization of $5.0 billion** approved in April 2025 . This replaced a prior $4.0 billion program authorized in July 2024 . Under the July 2024 plan, Horton had repurchased stock such that only \~$32.8 million remained unused by October - prompting the board to upsize the authorization to $5B in 2025. The current $5B authorization (with no set expiration) represents about 10% of the company's market cap, indicating the board's willingness to aggressively buy back shares if they see value. Looking over the past decade, Horton only began significant repurchases around 2016-2017 after shoring up its balance sheet post-crisis. In April 2021, the board authorized a $1.0B buyback (replacing a previous $1B) , then April 2023 another $1.0B , then October 2023 $1.5B , then $4B, and now $5B - a clear escalation as cash flows have grown. In FY2023 alone, the company repurchased **$1.2 billion of stock (3% of shares)** . Cumulatively over 2018-2023, share count dropped from \~377M to 332M (-12%) . Management uses buybacks opportunistically: for example, in late 2022 when the stock dipped on recession fears, Horton accelerated repurchases (reducing share count by 3% in FY2023) . The effect is enhanced EPS and a signal of confidence. The chart below shows DHI's share count declining: - *FY2015: 370M shares; FY2023: 343M; mid-2025: \~305M* The **historical context**: Horton initiated a small buyback in 2014 (\~$100M) but really ramped up from 2018 onward. The company's strong cash generation in 2021-2023 enabled both dividends and heavy repurchases (e.g. FY2023 operating cash flow was $4.3B , easily covering capital returns). Going forward, with \~$3.0-4.0B annual free cash flow potential, Horton can continue meaningful buybacks without sacrificing growth investment. The board's authorization of $5B in 2025 indicates they view the stock as undervalued (the stock was trading around 9x earnings at the time). **Value Investor Activity**: Given its strong fundamentals and moderate valuation, D.R. Horton has attracted some prominent value investors recently. Most notably, **Berkshire Hathaway (Warren Buffett)** took a new position in DHI in Q2 2023, buying \~5.97 million shares (worth \~$726M) . This was big news - Buffett rarely buys homebuilder stocks - and signaled that he saw exceptional value. Berkshire's buy price averaged around $110-120 (DHI was \~8x earnings). However, in a surprise move, Berkshire **fully exited D.R. Horton by year-end 2023**, selling all \~6M shares . This was disclosed Feb 2024 and puzzled many, as Buffett typically holds long-term. Likely, Berkshire took quick profits - DHI's stock jumped \~40% in H2 2023 (from \~$112 to \~$152) , so Buffett realized a \~$200M gain (\~25%) in under 6 months. While uncharacteristic for him, it may have been a shorter-term opportunistic trade . Other value-focused funds have been accumulating DHI. For example, **Glenn Greenberg's Brave Warrior Advisors** increased its stake by +50% to \~1.17M shares in mid-2025 , citing DHI's strong margins and capital returns fitting their conservative value style . **Andreas Halvorsen's Viking Global** opened a new 1.36M share position in 2025 - Viking typically seeks high-quality businesses with secular tailwinds, suggesting confidence in housing demand. **Steve Cohen's Point72** also initiated \~766k shares , likely seeing momentum and macro inflection potential. Quant fund **AQR Capital** (Cliff Asness) boosted its stake to \~454k shares in 2025 , aligning with its models favoring low valuation and strong profitability. Even **Bridgewater Associates (Ray Dalio)** took a new small position (185k shares) in 2025 , as part of an all-weather diversification into housing. These moves show that respected investors find D.R. Horton's stock attractive - it trades at \~10-12x earnings with >20% ROE , a combination many value investors seek. In terms of ownership influence, these value investors are mostly passive stakes and have not engaged in activist actions. However, their buys and sells can affect market sentiment. Buffett's quick exit in 2024 caused a brief stock dip on fear he foresaw trouble, but the price recovered as fundamentals stayed strong (and Buffett never gave a negative comment on DHI; likely it was just profit-taking) . On the other hand, continued accumulation by long-term oriented funds provides a supportive shareholder base. Looking at insider trading, there's been routine selling by some execs (stock option exercises etc.), but notably, founder Don Horton would occasionally **buy shares on dips**, reinforcing confidence. **Dividends**: D.R. Horton also pays a dividend which has grown consistently. The current quarterly dividend is $0.25/share ($1.00 annual), up from $0.15 a couple years ago . The yield is about 1%, relatively low, but the dividend has increased \~67% since 2019. The payout ratio is under 10%, reflecting that Horton prioritizes reinvestment and buybacks. Nonetheless, the dividend provides a steady return to shareholders and signals financial strength (it has continued through cycles; Horton even raised it in 2020 during COVID uncertainty). In summary, D.R. Horton's shareholder base is stable and supportive, with insiders (the Horton family) and major institutions in alignment. Capital return has become a significant part of the story - management is actively repurchasing shares when advantageous, and modestly growing the dividend. These actions, combined with interest from noted value investors, indicate a shareholder-friendly approach. So far, there's been no shareholder activism or major contentious issues; votes align with management, who in turn have been returning excess cash to owners. If Horton's cash flows remain robust, shareholders can likely expect continued buybacks (the new $5B program) and dividend hikes, enhancing their total return alongside stock price appreciation. ## **10 Years Key Metrics (Table)** Below is a table of D.R. Horton's key financial metrics over the past 10 years (2015-2024) plus the latest TTM (trailing 12 months up to Q3 2025). This highlights the company's growth and financial trends: | **Year** | **Revenue ($B)** | **Net Income ($B)** | **EPS ($)** | **Gross Margin** | **Net Margin** | **ROE** | **ROA** | **Debt/Equity** | |--------------|------------------|---------------------|-------------|------------------|----------------|-----------|-----------|-----------------| | 2015 | $10.82 B | $0.75 B | $2.03 | 21.1% | 6.9% | 13.5% | 7.0% | 0.89 | | 2016 | $12.16 B | $0.89 B | $2.36 | 21.8% | 7.3% | 13.9% | 7.8% | 0.70 | | 2017 | $14.09 B | $1.04 B | $2.74 | 21.6% | 7.4% | 14.1% | 8.7% | 0.57 | | 2018 | $16.07 B | $1.46 B | $3.81 | 22.8% | 9.1% | 17.0% | 10.8% | 0.54 | | 2019 | $17.59 B | $1.62 B | $4.29 | 22.0% | 9.2% | 16.6% | 10.7% | 0.52 | | 2020 | $20.31 B | $2.37 B | $6.41 | 24.3% | 11.7% | 21.3% | 13.5% | 0.56 | | 2021 | $27.77 B | $4.18 B | $11.41 | 28.4% | 15.0% | 30.2% | 19.3% | 0.58 | | 2022 | $33.48 B | $5.86 B | $16.51 | 31.4% | 17.5% | 32.8% | 21.1% | 0.53 | | 2023 | $35.46 B | $4.75 B | $13.82 | 25.0% | 13.4% | 21.9% | 15.0% | 0.41 | | 2024 | $36.80 B | $4.76 B | $14.34 | 25.9% | 12.9% | 19.2% | 13.7% | 0.40 | | **TTM 2025** | **$34.58 B** | **$3.96 B** | **$12.45** | **24.8%** | **11.5%** | **15.7%** | **11.1%** | **0.48** | *Sources: Company 10-Ks, Macrotrends, Reuters. Gross Margin = Gross Profit/Revenue. ROE/ROA for 2023-24 from 10-K . Debt/Equity = total liabilities ÷ equity (year-end). TTM = 12 months ending June 30, 2025.* Over this decade, D.R. Horton's **revenue nearly tripled** (from $10.8B to $36.8B), and net income grew even faster (6.3× increase from $0.75B to $4.76B). Margins expanded significantly during the 2020-2022 housing boom (gross margin peaked \~31% in 2022 , net margin \~17.5%), then normalized lower in 2023-2024 as costs caught up and incentives increased. Notably, Horton's **return on equity (ROE)** averaged \~18% over 2015-2024, spiking above 30% in 2021-2022 during the boom . Even in softer 2023-2024, ROE remained \~19-22%, reflecting strong profitability . The balance sheet became more efficient too - the Debt/Equity ratio fell from \~0.9 in 2015 to \~0.4 by 2023 as equity grew and debt stayed moderate. D.R. Horton's **current ratio** (not in table) has been very high (\~6-7×) , indicating ample liquidity (lots of inventory and cash relative to short-term liabilities). Overall, the company's metrics show a trajectory of growth and improved financial strength over the past decade. ## **Buffett‑Style Checklist** We now evaluate D.R. Horton against Warren Buffett's criteria for a "great company" and value investment, using the historical metrics above: **1. Valuation Discipline:** Buffett typically likes companies with low valuations relative to earnings and assets. D.R. Horton currently trades around 10-12× earnings (P/E) - **below Buffett's P/E ≤ 15 benchmark** . In fact, DHI's average P/E over the past 10 years is \~11 (ranged \~5-17). It was as low as 5.3× in 2022's trough when earnings peaked and stock lagged - a very cheap valuation. The P/B ratio is about **2.0**, above the classic ≤1.5 hurdle, but that doesn't fully account for Horton's strong ROE. Also, Horton's P/B was ≈1.5 or lower during parts of 2018 and 2022 , meeting that criterion then. Regarding **Margin of Safety**, Buffett seeks buying at ≤75% of intrinsic value. Horton's intrinsic value (using a DCF or justified P/E approach) appears well above the current price in nominal and optimistic cases (see DCF analysis below), implying a >25% margin of safety was present, especially in 2022-2023 when the stock was under $100 (Buffett indeed bought around $110 ). Thus, on valuation, D.R. Horton largely **passes** - it has often traded at a single-digit P/E (due to cyclical fears), providing a margin of safety for value investors . **2. Cash Generation & Allocation:** A great company must generate consistent free cash flow (FCF) and use retained earnings effectively. D.R. Horton's **Free Cash Flow** can be choppy year-to-year due to working capital swings (it invests in land and home inventory heavily during growth spurts). For example, FCF was slightly positive in 2015-2019, then dipped near breakeven in 2021-2022 as the company built inventory (only $0.56B CFO in 2022) , then surged to $4.3B in 2023 when it harvested that inventory . Over the full cycle, however, Horton did produce positive FCF each year - it was **positive all 10 years**, albeit small in some (e.g. 2021 CFO $0.53B ). On average, FCF/Revenue was >5% in most years, except when intentionally growing inventory (2021-22 had FCF margin \~2%). So it *mostly passes* the FCF consistency test, acknowledging the cyclicality. Importantly, Horton has **allocated capital prudently**. It retained earnings to fuel expansion during high-growth periods (no dividend from 2008-2013, low payout since), then returned cash aggressively when flush (initiated dividend in 2014, and repurchased \~12% of shares since 2017). We can check **Return on Retained Earnings**: from 2014 to 2024, Horton retained roughly $20 billion cumulative and net income increased \~$4.2 billion, implying \~21% return on those retained earnings (this is a rough gauge). Even a shorter horizon: between 2018 and 2023, the company retained \~$5.5B (net of dividends) and net income rose \~$3.3B - a very high incremental return. So it **exceeds the ≥12% return on retained earnings** threshold. In Buffett's terms, management has turned each dollar plowed back into >$0.20 of incremental annual earnings, a strong performance. **3. Growth & Predictability:** Buffett likes steady, upward earnings with no losses. D.R. Horton's **EPS record** has been positive every year for the past decade and generally rising (EPS grew from $1.50 in 2014 to $14.34 in 2024) . There was a slight EPS dip in 2023 (down 16% from 2022's peak) , breaking the streak of continuous increases, but EPS remained far above pre-2020 levels. Over 10 years, EPS CAGR is \~25%. Thus, Horton nearly achieves "rising every year for 10 years" - nine up years and one modest down - still a **strong pass** on earnings growth overall. **Book value per share**(shareholders' equity per share) has compounded at \~15% annually, from $15.99 in 2015 to $77.78 in 2024, with **no declines in any year** (even during 2023's profit dip, book value per share rose 20% thanks to buybacks and retained earnings ). That comfortably meets Buffett's test of 10% BVPS CAGR and no contraction. **Owner's Earnings** (net income + depreciation - maintenance capex) has been positive each year. Essentially net income itself serves as a proxy since capex is minor for a builder (Horton's depreciation was only \~$78M in 2024 ). Owner's earnings yield (OE/Market Cap) is currently around 8% ($4B/$50B), which is slightly below the ≥10% Buffett likes. However, at 2022's low share price it was \~15% - so an investor buying during market pessimism would have gotten >10% owner earnings yield (indeed one reason Buffett likely bought then). On consistency, owner's earnings have grown over time with net income, though as noted, reported FCF swings with inventory cycles. Overall, Horton shows **strong growth and relatively predictable performance for a cyclical business**, with only a mild earnings dip in a tough 2023 - a resilient result that suggests it possesses some durable advantages. **4. Balance-Sheet Safety:** Buffett avoids highly leveraged companies. D.R. Horton's balance sheet is very solid. **Debt-to-Equity** is \~0.4 (or Debt/Asset \~28%), well below the 0.5 threshold . Horton carries about $5.9B long-term debt vs $25.8B equity in 2024 . Its **interest coverage** is enormous because EBIT was $5.9B in 2024 while interest incurred was \~$150M (if it weren't capitalized) - over 35× coverage. Using the given standard, **Interest Exp/Op Income** was effectively \~0% in 2023-24 (since interest was fully capitalized) . Even if we include all interest, $150M is only 2.5% of $5.936B op income in 2024, easily passing the ≤15% test. Horton's **Current Ratio** is exceptionally high at \~7.3× in 2024 , far above the >1.5 benchmark - the company maintains plenty of liquidity (over $7B cash on hand and a large revolver available). Horton deliberately keeps a low debt profile; its debt-to-capital was \~18% in 2023 , and it has no significant near-term maturities (next senior note due 2026). This conservative balance sheet contributed to its investment-grade credit rating. Buffett would likely approve of Horton's financial fortress: it could pay all short-term liabilities 7× over, and long-term debt is modest relative to assets and equity. The **one caveat**: much of Horton's "assets" are inventories (land and homes), which in a severe downturn can lose value, but Horton has a strong history of managing inventory risk (e.g. using option contracts to avoid over-leveraging on land ). In sum, Horton **passes all balance sheet safety checks** with flying colors. **5. Profitability & Efficiency:** Buffett favors companies with high margins and returns on capital. D.R. Horton's margins are good for its industry, though not as high as some elite non-cyclical businesses. Its **Gross Margin** was \~25.9% in 2024 - below the >40% Buffett ideal (builders are asset-heavy, lower-margin businesses). Even at peak, Horton's gross margin \~31% (2022) didn't approach 40% . So by that strict >40% yardstick, Horton **does not pass gross margin** - but it's the nature of the industry; importantly, Horton's gross margin is among the highest in the homebuilding sector (industry median \~22% ), indicating it has some competitive advantage in cost or pricing. **Net Profit Margin** reached \~17% in 2022, but in normal times is \~12-13% , below the suggested 20%. Thus, by that >20% net margin rule, Horton **falls short**. However, its net margin is consistently higher than most peers (e.g. Lennar's was 14% in 2022). Where Horton shines is **Return on Equity**, averaging \~22% the past 5 years and \~18% over 10 years . Buffett looks for ≥15% ROE long-term, and Horton clearly achieves that (10-year avg \~18%, and it was >30% in the boom) . This indicates efficient use of capital. Similarly, **ROIC** (return on invested capital) for Horton has been strong recently: \~32% in 2022 and \~19-22% in 2023-24 , well above Buffett's \~12% hurdle. Even adjusting for cycles, Horton's ROIC has trended upward - it was \~12-15% in mid-2010s , rising to \~25-30% in late 2010s and 2020s. This suggests Horton has built some durable efficiencies at scale (perhaps volume purchasing power and low SG&A). **ROA** is slightly below Buffett's 6% target in some years (e.g. 2015-2016 \~5.6-7.8% ) but has been well above 6% since 2020 (13.7% in 2024 ). Horton's ROA is acceptable given homebuilding's asset intensity and easily beats peers. Lastly, **Depreciation/Gross Profit**: Buffett prefers companies with low capital intensity. Horton's depreciation is minimal - only \~$79M vs $9.53B gross profit in 2024 , i.e. \~0.8%. Even including amortization of intangibles, it's under 1% of gross profit - far below the ≤10% threshold. This indicates that Horton's earnings are real cash earnings and not being consumed by heavy maintenance capex - a *positive*for the business quality (most assets are inventory that turns over, not fixed plant that depreciates). To summarize, D.R. Horton meets many of Buffett's quality criteria: **consistent earnings growth**, high returns on equity/capital, strong free cash flow conversion over time, shareholder-friendly management, and a solid balance sheet. It falls short on the **margin criteria** (gross and net margins are below Buffett's ideal) - but this is typical for a homebuilder, which is a more commodity-like business than Buffett's favorite consumer brands or tech firms. Despite lower margins, Horton's **efficiency (ROE/ROIC)** is high, suggesting it compensates with fast asset turnover and prudent leverage. Buffett did invest in Horton (albeit briefly), indicating he found enough to like, likely the valuation, dominance in its industry, and financial strength outweighed concerns about cyclicality. In conclusion, by Buffett's checklist D.R. Horton **scores well** on valuation, capital stewardship, growth, and balance sheet; it only modestly lags on profit margins, which are inherent to its industry but mitigated by superior scale and execution. Thus, Horton can be considered a great company in a cyclical sector - with metrics that, for the most part, **pass Buffett's standards** for quality and value. ## **DCF Analysis (Conservative, Nominal, Optimistic)** To estimate D.R. Horton's intrinsic value, we perform a Discounted Cash Flow (DCF) analysis under three scenarios - **Conservative**, **Nominal**, and **Optimistic** - based on varying free cash flow growth assumptions. We use the company's recent free cash flow (FCF) as a starting point and growth rates informed by its past 10-year FCF history (which has been volatile but strongly upward overall): - **FCF Baseline**: We take $4.3 billion as the current annual free cash flow (approximately DHI's operating cash flow in FY2023 minus minimal capex). This roughly equates to recent net income (\~$4.76B in 2024 , noting Horton's net income and cash flow converge over time since inventory changes net out). - **Growth Rates**: Over the last decade, D.R. Horton's FCF growth has ranged from negative in some years to extremely high in others (e.g. +666% from 2022 to 2023 when cash flow rebounded post-inventory build ). To ground assumptions: - *Conservative*: We use **0% FCF growth**, assuming earnings and cash flow simply flatline at current levels forever. This captures a scenario of no growth - perhaps if high rates permanently cap housing demand. - *Nominal/Base*: We use **+10% annual FCF growth for 10 years**, reflecting a moderate average growth. Horton's net income grew \~15% CAGR in the past 10 years, and revenue \~14% . However, to be cautious (given cycles), we choose 10%, which is the low end of its historical range (and assumes slower growth as the company is larger now). - *Optimistic*: We assume **+20% annual FCF growth for 10 years**. This is closer to Horton's exceptional growth phase (EPS grew \~25% CAGR last decade). 20% is aggressive but within reason if conditions turn very favorable (e.g. sustained undersupply driving volume and pricing). We use this as a best-case to see upside. - **Terminal Value**: After 10 years, we assume FCF growth flattens to 0% (no growth perpetuity). This is conservative (Buffett might instead use a terminal multiple). We choose a **10% discount rate** (typical for equity - implies about a 7% equity risk premium over risk-free rates). This is aligned with Buffett's hurdle (he often uses \~10% as a discount rate for valuation). Using these inputs, we calculate the present value of 10 years of cash flows plus a terminal value at year 10 (FCF\_Year10 ÷ 10% discount rate, discounted back). **Conservative Case (0% growth)**: FCF stays at \~$4.3B each year. The present value of a flat $4.3B annuity for 10 years at 10% is $26.5B. Terminal value (year 10 FCF $4.3B / 0.10 = $43.0B) discounted back is $16.6B. Sum = **$43.1 billion intrinsic equity value**. With 305M shares, that is about **$141 per share**. Applying a 25% margin of safety, the **buy price** would be **≤$106**. *Result:* Even with zero growth assumed indefinitely, DHI's intrinsic value is around $140/share, slightly below the current market price ($164) - indicating the stock isn't a bargain in a no-growth scenario, but also not dramatically overpriced. **Nominal Case (10% growth)**: FCF grows to $11.2B by year 10. The 10-year cash flow PV sums to $27.0B. Terminal value = $11.2B/0.10 = $112B, PV = $43.2B. Total = **$70.2 billion** equity value, or \*\*$232 per share\*\*. With a 25% margin, a **buy price** would be **<$174**. *Result:* Under reasonable growth (10% annually, which is slower than past performance), DHI's estimated intrinsic value is about $230/share. The current stock price ($164) is about 30% below this intrinsic value, suggesting a margin of safety exists. In fact, at $164 the market is roughly pricing in only \~8% growth (since that's the breakeven growth between 0% and 10% scenarios). This nominal case implies DHI is **undervalued** for a long-term investor expecting continued growth. **Optimistic Case (20% growth)**: FCF grows explosively, reaching $26.6B by year 10 (reflecting perhaps a prolonged housing boom). The PV of cash flows = $34.8B. Terminal value = $26.6B/0.10 = $266B, PV = $102.7B. Sum = **$137.5 billion**, or \*\*$451 per share\*\*. 25% margin buy price = **<$338**. *Result:* If one believes D.R. Horton can sustain 20% growth for a decade (similar to its last 10-year EPS trajectory) and then level off, the stock's intrinsic value would be enormous - nearly 3× the current price. This highlights the **upside potential** if housing demand stays robust and Horton continues to dominate. Of course, 20% annual growth over 10 years is a lofty scenario (it would imply perhaps doubling home deliveries to \~180k/year and some price increases). But given Horton's past ability to double revenue roughly every 5 years in expansions, it isn't entirely outlandish. Still, a prudent investor might not assume this best-case, but it shows DHI's **intrinsic value could be much higher** if the optimistic story plays out. These DCF figures should be taken with caution due to the cyclicality of housing. D.R. Horton's cash flows are not as smooth as a typical Buffett consumer stock - in downturns, FCF could drop significantly (even be negative if Horton chooses to reinvest heavily at a bottom). That said, using normalized or average cycle earnings in a DCF would likely yield a similar conclusion to our nominal case. At present, DHI's stock at \~$164 is **below our base-case intrinsic value ($232)**, suggesting 30-40% upside. It is above the no-growth value ($141), indicating the market is pricing in some growth but arguably not the full historical growth potential. In sum, **Conservative DCF** (zero growth) shows limited downside (value \~$140 vs price $164, a mild overvaluation if growth truly stalled). **Nominal DCF** (10% growth) shows the stock is undervalued by about 25-30%. **Optimistic DCF**shows huge upside (the stock could triple in a very strong scenario). Therefore, under reasonable long-term assumptions, D.R. Horton appears to offer a **margin of safety** for investors - its strong cash generation and moderate valuation combine to make it an attractive DCF-based investment, as evidenced by Buffett's own interest in 2023. An investor demanding a 25% margin of safety would aim to buy DHI below \~$174 (nominal scenario) - the stock spent much of 2023 under that level, which is likely why astute investors were accumulating . ## **Key Metrics Charts** The following charts visualize D.R. Horton's 10-year trends for select key metrics, with Buffett's benchmark standards indicated where applicable: *Market Price (股价) - D.R. Horton's year-end stock price has risen significantly over the decade, reflecting robust growth (Note: 2025 value is YTD).* *Book Value per Share (每股账面价值) - Steady growth with no declines, averaging \~15% annually, indicating consistent building of equity.* *P/E Ratio (市盈率) - Horton's valuation has generally been low; it dipped well below 10× in 2022 (red line = 15× Buffett benchmark).* *P/B Ratio (市净率) - Generally under 2; it was near 1.0-1.5 in value periods (red line = 1.5× benchmark).* *Total Assets vs. Liabilities - Assets (blue) grew as Horton expanded, while liabilities (orange) stayed relatively modest; debt-to-assets was \~28% in 2024.* *Profit Margins - Gross margin (毛利率, green) hit a high \~31% in 2022 then normalized \~25%; Net margin (净利率, purple) peaked \~17%, now \~13%. (Red line marks 40% gross margin goal; Horton stays below due to industry economics.)* *Return on Equity (净资产收益率) - ROE topped 30% during 2021-22 boom (red line = 15% Buffett target); even in normalization, ROE \~19-22%, consistently above benchmark.* *Return on Assets (资产收益率) - ROA improved to \~13-15% in recent years (red line = 6% target), far exceeding the standard, showing efficient asset use.* *Debt/Equity Ratio (负债率) - Dramatic improvement: from \~0.9 in 2015 down to \~0.4 in 2024 (red line = 0.5 threshold); Horton carries low leverage for its industry.* *Cash & Equivalents (现金及等价物) - Cash (blue) climbed to $7.0B by 2024 as profits soared; Horton's liquidity is strong relative to debt (orange, $5.9B in 2024).* In conclusion, D.R. Horton's financial metrics underscore a decade of profitable growth and increasingly efficient operations. The company meets or exceeds many of the criteria for a high-quality investment, especially when considering its valuation. Its stock appears to offer a margin of safety given solid fundamentals and conservative financial management. As always, prospective investors should remain mindful of housing cycle volatility, but Horton's track record suggests it is well-equipped to thrive across cycles. **Disclaimer**: This content only expresses the views of the author(s) as of the date indicated and such views are subject to change without notice. All financial data and analysis is based on publicly available sources and may be subject to revisions or differing interpretations. The content is for informational purposes only and does not constitute investment advice. Conduct your own due diligence with a licensed financial advisor before making investment decisions. The author has no duty or obligation to update the information contained herein. Further, the author makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Wherever there is the potential for profit, there is also the possibility of loss. This content is being made available for educational and informational purposes only and should not be used for any other purpose. The information contained herein does not constitute - and should not be construed as - an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction.