Don't Miss This Homebuilder Turnaround

When I wrote an article about the housing sector a couple of weeks ago, I pledged to keep you posted on developments  in the homebuilder space. Well, I'm back with some juicy fourth-quarter numbers from D.R. Horton (NYSE: DHI  ) .

Read along to know why I'm upbeat about this company and decide whether you agree with me.

Heading north
Take a look at D.R.'s numbers, and you'll be amazed at how the important metrics are heading north. From a net loss of $8.9 million in the fourth quarter last year, D.R.'s bottom line has turned to black with a profit of $35.7 million.

Homebuilding revenues crossed the billion-dollar mark to reach $1.1 billion, compared to $925.7 million last year, as home closures shot up 16.5% to 4,987 units. Are homebuyers flocking to the market? Higher home orders seem to say so. D.R.'s net orders in value terms rose 13.5% to $927.6 million. A definitely encouraging sign is how peers are also reporting a flow of orders.

Beazer Homes' (NYSE: BZH  ) fourth-quarter new home orders surged 33% to 1,006 homes from last year, while Standard Pacific's (NYSE: SPF  ) third-quarter home orders rose even more, by 38% to 764 homes.

There's more good news. D.R.'s backlogs -- an important indicator of future revenues – were up an awesome 17.6% in unit terms to 4,854 homes. Note how this is in contrast with Pulte Group's (NYSE: PHM  ) 4% fall in its last quarter backlogs. D.R.'s home cancellation rate was also lower, at 29% compared to Beazer's 34.2%.

Signs of life
Higher orders and healthier backlogs are crucial signs hinting at easier breathing for homebuilders. Rising orders also suggest that buyers are now getting over the federal tax credits that were in effect last year.

Recent data on housing have also thrown some encouraging signs at us.

Homebuilder stocks had gone into a tizzy last month when the National Association of Home Builders/Wells Fargo Housing Market Index, which gauges consumer sentiment, posted its highest one-month gain in more than a year. I don't blame the stocks for acting crazy, because an uptick in consumer confidence is one of the first signs of recovery.

September new home sales rose 5.7% sequentially. To top that, Freddie Mac's U.S. Economic and Housing Market Outlook for October has raised long-awaited hopes by showing a slow yet gradual pickup in new construction as well as rents this year.

Business at home improvement retailers such as Home Depot (NYSE: HD  ) are also largely linked to the real estate market. Its higher sales suggest that sprucing up homes is finding its way back on folks' to-do lists -- another sign of housing recovery.

The Foolish bottom line
D.R. Horton is indeed showing signs of turning around. It also scored a coup when none other than chemical giant Dow Chemical (NYSE: DOW  ) set its eyes upon it for the launch of its revolutionary solar roofing shingles.

Improving performance and good-looking balance sheets with higher cash and lower debts have made me rather optimistic about D.R.'s future.

Use the links below to add these companies to your watchlist, our free and personalized stock-tracking service.

Fool contributor Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Wells Fargo. Motley Fool newsletter services have recommended buying shares of The Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 19, 2011, at 6:57 AM, bobbyrenfro wrote:

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