What happened
Shares of D.R. Horton (DHI +0.36%) surged 11% in December, according to data provided by S&P Global Market Intelligence. Several positive news items helped drive the housing stock higher last month.
So what
Data released in December pointed to continued strength in the housing market. The Commerce Department reported that housing starts in November hit an eight-month high, increasing 11.8% to a seasonally adjusted 1.670 million units. That was well above the 1.568 million units expected by economists. Meanwhile, permits for future home building increased by 3.6% to 1.712 million units.
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Home prices also remained strong. The S&P Case-Shiller Index was up double digits through October, with projections for continued double-digit growth for the balance of the year. While forecasters predict slower home price growth in 2022, the average forecast of another 8% increase in home prices hints at continued strength in the housing market.
Meanwhile, a survey last month from the National Association of Homebuilders showed increasing confidence among homebuilders. That was the fourth consecutive month of rising confidence despite continued issues finding workers, predicting pricing, and dealing with supply chain challenges.
These numbers all bode well for leading homebuilder D.R. Horton, suggesting it will report strong fiscal first-quarter earnings in February. The homebuilder is coming off an excellent fiscal Q4. It reported those numbers in November. Homes closed increased by 8% to 21,937 homes, while revenue rose 27% and net income per share jumped 65% thanks to higher margins. The company also started construction on 22,400 homes during the fourth quarter and another 8,000 in October, putting it in a solid position to deliver double-digit volume growth in fiscal 2022.
D.R. Horton also benefited from a bullish analyst note last month. Barclays' Matthew Bouley increased the bank's price target from $122 a share to $140 a share while keeping an overweight rating on the stock. That implies more than 35% upside to the current price even after last month's rally. The analyst believes D.R Horton has a compelling valuation considering the healthy housing market.
Now what
D.R. Horton is benefiting from strong conditions in the housing market. It can't keep up with buyer demand, which is driving up revenue and margins despite several headwinds. That suggests further upside ahead for D.R. Horton stock.
