Can D.R. Horton Sustain EPS Growth With Housing Demand Cooling?

With nine months of fiscal 2025 (ended June 30) already completed, D.R. Horton, Inc. DHI continues to face pressure from the softness in the United States housing market. Although the housing market was expected to begin normalizing from the second half of calendar year 2025, it remains underwater due to a still-high mortgage rate scenario, inducing affordability concerns, with the newly exercised tariffs adding to its woes.

In the first nine months of fiscal 2025, DHI’s home closed units were down 6.9% year over year to 61,495 units, with net sales orders tumbling 6.2% to 63,345 homes. The numbers seem depressing, but D.R. Horton is not just sitting idly, seeing the numbers roll down. The company is exercising several in-house efforts to mitigate the market’s adverse impacts on its business performance and profitability.

To counter affordability concerns of homebuyers, which is the core issue currently, DHI is offering necessary incentive options like mortgage rate buy-downs to spur the market demand. Other than this, the company has strategically shifted its focus toward more entry-level, affordable homes, which is paying off. On the recent earnings call, the company highlighted that 81% of the homebuyers availed of its incentive services, with first-time homebuyers contributing about 64% to its home closings, sequentially up from a 63% contribution.

Although in the short run, the pricing, incentives and sales pace mix of DHI might not incrementally favor its profitability and bottom-line expansion, in the mid and long terms, these efforts are expected to realize elevated benefits. With 601,400 lots in inventory as of the third quarter of fiscal 2025, improved construction cycle times, strong liquidity and low leverage, D.R. Horton is well-positioned for the upcoming years.

EPS Trend of DHI

For fiscal 2025 and fiscal 2026, DHI’s earnings estimates have trended upward in the past 30 days by 0.3% each. The revised estimated figure for fiscal 2025 implies a year-over-year decline of 18% but that of fiscal 2026 indicates 2.5% growth.

In the near term, the in-house efforts might not scale the bottom line, but the mid and long-term prospects seem to be improving, with analysts being optimistic about DHI’s potential.

Competitive Scenario of D.R. Horton in the Homebuilding Market

D.R. Horton competes head-to-head in entry-level housing and incentive offering strategies with key homebuilders of the market, Lennar Corporation LEN and PulteGroup, Inc. PHM.

Lennar balances its focus between first-time buyers and move-up segments but has sharpened its appeal to the entry-level market in recent years. Like its peers, Lennar has increasingly offered rate buydowns and closing cost assistance, helping sustain demand despite affordability pressures. In the second quarter of fiscal 2025, home deliveries increased 2.2% to 20,131 units year over year, with home orders rising 6.1% to 22,601 homes.

Similarly, PulteGroup has expanded its entry-level presence through its Centex brand, competing directly with its market peers. PulteGroup deploys targeted incentives, including financing programs and price concessions, to draw buyers, though it maintains a broader portfolio mix.  In the second quarter of 2025, home closings comprised 38% of first-time, 42% of move-up and 20% of active adult buyers. The shift from mix to first-time is in line with PulteGroup’s strategy of having more than one-third of its business in the first-time buyer space.

DHI Stock’s Price Performance & Valuation Trend

Shares of this Texas-based homebuilder have soared 43.1% in the past three months, significantly outperforming the Zacks Building Products - Home Builders industry, the broader Zacks Construction sector and the S&P 500 Index.

DHI stock is currently trading at a premium compared with the industry peers, with a forward 12-month price-to-earnings (P/E) ratio of 14.05, as evidenced by the chart below. The overvaluation of the stock compared with its industry peers indicates its strong potential in the market, given the favorable trends backing it up.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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