D.R. Horton, Inc. (DHI): what the price requires

At today's price, D.R. Horton, Inc. (DHI) is priced for -1.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/DHI

Headline

FieldValue
TickerDHI
CompanyD.R. Horton, Inc.
Current price$148.24/sh
CompositionHome sales 92% / Land/lot sales and other 1% / Rental property sales 5% / Financial services 2%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed2.3%
Operating margin today13.0%
Margin compression implied-10.7pp
Implied growth-1.3%
Multiple paid11x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.2% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~5.3pp.

How unusual the bet is: within-range

ReferenceValue
vs own history-1.52σ
cohort percentile (of 210 peers)20
implied end-window share0%

Valuation X-Ray

The price is supported by asset-based and relative-multiple value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.05x4expensive
Earnings1.33x4expensive
Relative0.64x2justifies
Growth1.42x3expensive

Families that justify the price: Asset, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.5%); the inversion above states its own rate.

Per-Model Detail (n=13)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$104.211.42xyesFCF base $3.5B, growth -6% (input: historical growth), terminal g 0.5%, WACC 8.5%, 5yr projection
DCF Exit MultipleGrowth$146.191.01xyesExit EV/EBITDA: 1721.6x / 1723.6x / 1725.6x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$191.700.77xyesP/E 18x (static sector reference · 2026-04), scenarios: 15.2x / 18.0x / 20.8x (bear / base = reference held flat / bull), EV/EBITDA 26.4x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$118.681.25xyesBV/sh $81.75, ROE (TTM) 13.4%, ke 9.3%
Two-Stage Excess ReturnAsset$141.681.05xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$75.491.96xyesRev $33.3B, growth -6% (input: historical growth; tapered), Terminal P/S: 1.1x / 1.3x / 1.5x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset$146.651.01xyesBV $81.75 + 5yr PV of (ROE (TTM) 13.4% − Kₑ 9.3%) × BV; BV grows 8.7%/yr
Graham NumberAsset$139.961.06xyes√(22.5 × EPS $10.65 × BVPS $81.75) — Graham's conservative floor
EV/EBITDA RelativeRelative$0.0114823.50xyesEBITDA $0.03B × sector EV/EBITDA 12.0x (excluded from median)
FCF YieldEarnings$113.871.30xyesFCF $3497.5M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$108.941.36xyesSBC-adj FCF $3.37B (FCF $3.50B − SBC $0.13B) capitalized at Kₑ
Ben Graham FormulaEarnings$8.9316.60xyesEPS $10.65 × (8.5 + 2×-5.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative$288.480.51xyesRevenue $33.35B × sector P/S 2.5x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$115.141.29xyesEPS $10.65 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$4.6b
Net debt / NOPAT (after-tax)1.50x
Net debt / operating income (pre-tax)1.14x
Share count CAGR (buyback)-5.1%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Bull Case

Start with the direction of the orders, because for a homebuilder the order book leads everything else. In its most recent quarter, D.R. Horton grew net sales orders 11% year over year and lifted its average active selling community count 4% sequentially, then beat earnings expectations with $2.24 per share on $7.56 billion of revenue. In a housing market where affordability is strained and buyer sentiment is cautious, growing orders double digits is a sign that Horton's model, the affordable, entry-level home priced where the buyer can actually qualify, is taking share precisely when demand is hardest to win.

Scale is the durable advantage underneath the orders. As America's largest builder, Horton has buying power on land, labor, and materials, a national footprint that spreads regional softness, and the volume to keep its construction crews and subcontractors busy through the cycle. That scale lets it absorb affordability pressure with tools smaller builders cannot afford, chiefly mortgage rate buydowns and incentives that lower the buyer's monthly payment, while still closing 86,000-plus homes a year. The 10-K frames the demand environment around the variables Horton manages against: "consumer confidence and spending; housing demand; availability of financing for homebuyers; interest rates; inflation." A builder that can flex price and incentive to keep volume moving in a tough market is demonstrating exactly the resilience the cycle tests for.

Capital allocation closes the bull case and explains the low multiple. Horton generates substantial free cash flow, carries modest leverage with net debt around one times operating income, and returns cash aggressively: it bought back 30.7 million shares in fiscal 2025 under a multibillion-dollar authorization that "has no expiration date," shrinking the share count about 5% a year, and pays a growing dividend. The valuation is undemanding, around 12 times operating income, which implies barely any growth, and the relative lens reads Horton as cheaper than its homebuilder peers. A scale leader buying back 5% of its stock annually at a below-peer multiple compounds per-share value even in a flat housing market, and re-rates sharply if rates ease and the cycle turns up.

Bear Case

The capital-allocation question the bear should press is what the volume is costing. Horton is keeping orders growing, but it is buying that growth with incentives and mortgage rate buydowns that come straight out of margin: average closing prices fell about 3% year over year, and the company guides home sales gross margin near 20%, down from the peak-cycle levels of recent years. The buyback flatters earnings per share even as the underlying profit per home compresses, which means a portion of the per-share story is financial engineering layered on a softening operating economics. Retiring 5% of the shares a year is real value creation when the business is healthy, but it can also paper over a deteriorating margin trend that the headline EPS hides.

The deeper risk is the cycle itself, which Horton does not control. Homebuilding demand turns on mortgage rates and affordability, and both are stretched. The 10-K's risk list reads like a map of the company's exposures: "housing demand; availability of financing for homebuyers; interest rates; inflation." If rates stay high or rise, the rate buydowns that sustain volume get more expensive, squeezing margin further, and at some point incentives cannot offset payments buyers simply cannot afford. Horton's volume also depends on the mortgage-finance plumbing, with the filing noting that any "significant change regarding the long-term structure and viability of Fannie Mae and Freddie Mac could result in adjustments" to the financing its buyers rely on. The current price assumes near-flat operating income, so it is not pricing a boom, but a genuine downturn, falling volumes and falling margins at once, would still hit hard.

The structural feature of the model is that it is capital-intensive and inventory-heavy. Horton must continually buy land and carry homes under construction, and while it uses option contracts to limit owned land risk, a sharp demand drop leaves it holding inventory in a falling market, the classic homebuilder trap. The balance sheet is sound, with modest leverage, so this is not a solvency concern, and the asset value provides a floor. The bear is not that Horton is a bad company; it plainly is the best-run builder at scale. The bear is that the price, while cheap on peak-ish earnings, is cheap for the reason cyclicals are always cheap at the top, because the earnings are near a cyclical high, the margin is already compressing, and the buyback is doing some of the work the operating business used to do on its own.

Valuation

The trap with a homebuilder is valuing it on peak earnings, and Horton's price seems to know it. At roughly 12 times operating income, the price implies only about 1.8% annual operating growth for five years, an undemanding bar that effectively assumes the cycle is near a plateau rather than climbing. The current operating margin near 12% is well above the roughly 2% the price implies it can sustain, which is the market's way of pricing in margin normalization off cycle-high levels. So the price is not betting on a housing boom; it is betting the business holds roughly flat, which for a cyclical at this point in the cycle is a reasonable, even cautious, assumption.

The methods we use to triangulate point to a value-and-asset name rather than a growth bet. The relative lens reads Horton as cheap, valuing it below the homebuilder peer multiple, and the asset lens, anchored on a book value around $82 per share and a 13% return on equity, lands near the price. The earnings-power lens sits modestly below, reflecting the same margin-normalization concern. Only the growth-based method reads the price as expensive, and it does so by extrapolating a low or negative growth rate, which is the wrong lens for a cyclical at this point. Read honestly, the spread says a well-capitalized builder priced for stagnation, with real asset backing and a peer-relative discount.

Solvency is a strength and supports the buyback-driven thesis. Net debt of about $4.6 billion is only around one times operating income, modest for a capital-intensive homebuilder, and the company generates strong free cash flow it returns through a large, open-ended buyback and a growing dividend. The share count is shrinking about 5% a year, direct evidence of capital return rather than dilution. The downside is bounded by real estate inventory and a sound balance sheet, not by zero; the genuine risk in a deep downturn is carrying that inventory in a falling market while volumes drop. The buyer at this price is paying a below-peer multiple for the scale leader in homebuilding, getting a 5%-a-year buyback as a tailwind, and betting that a cyclical priced for stagnation does not instead roll into a downturn.

Catalysts

D.R. Horton's fiscal second-quarter 2026 result beat expectations and reassured investors that demand was holding. Earnings came in at $2.24 per share against a $2.13 estimate, on revenue of $7.56 billion, and the stock jumped more than 8% on the print. The encouraging operating signal was orders: net sales orders rose 11% year over year, and the average active selling community count grew 4% sequentially, evidence that Horton is winning buyers despite affordability pressure.

The numbers underneath show the margin-for-volume trade clearly. The average closing price of homes fell about 1% sequentially and 3% year over year, reflecting the incentives and rate buydowns Horton is using to keep payments affordable, and the company guided third-quarter home sales gross margin to 19.7% to 20.2% with consolidated pretax margin of 12.2% to 12.7%. For the full year, management expects consolidated revenue of $33.5 billion to $34.5 billion and 86,000 to 87,500 homes closed, with a $0.45 quarterly dividend. Holding volume guidance while margins normalize is the balance the company is managing.

The catalysts that matter from here are mostly macro. Mortgage rates are the single biggest swing factor: a meaningful decline would ease affordability, reduce the cost of the buydowns, and lift both volume and margin, while higher-for-longer rates do the reverse. The other watch items are the order trend in coming quarters, the gross margin trajectory as incentives flex with demand, and the pace of the buyback, which continues to shrink the share count regardless of the cycle. For a stock priced for stagnation, any sign that the cycle is turning up, lower rates and stabilizing margins, is the upside catalyst; renewed margin compression or an order slowdown is the bear's.

Peer Cohorts (Per Segment, With Filing Citations)

Homebuilding (reported)

Rental (reported)

Forestar (reported)

Financial Services (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q2 fiscal 2026 results, April 2026 · D.R. Horton FY2025 10-K · Q2 fiscal 2026 guidance · Q2 fiscal 2026 results

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