Summary
DHI appears undervalued due to perceived macroeconomic risks. However, the construction sector still offers enough tailwinds to support DHI's projected growth.
Several macroeconomic indicators suggest that there's still room to run. Thus, DHI should do fine at least until yearend 2019.
DHI's strategy is to focus on the affordable home segment. This niche is undersupplied and should allow the company to benefit from improved margins.
My valuation of DHI through the GGM and PE ratios suggest that the company is deeply undervalued.
I conclude that DHI's upside potential ranges between least 21% up 72%. This is under conservative assumptions.
I believe that D.R. Horton Inc. (NYSE: DHI) is deeply undervalued. The market appears to be overly discounting a possible macroeconomic slowdown, and thus assigns a depressed valuation to the stock. However, upon closer inspection, the economy appears to be fine and without signs of an imminent correction. In fact, my analysis shows that positive secular trends for construction should persist at least until 2019. This is in line with management's expectations and forecasts.
Source: DHI's logo.
