Summary: Investment bank Goldman Sachs has upgraded construction stock D.R. Horton to a buy rating, stating that the focus on home sale volume will help the company succeed even in the face of higher mortgage rates. Despite trimming its target price, Goldman Sachs still sees significant upside for the stock. The bank believes that tight inventory and buyer budgets, along with rising mortgage rates, will drive consumer preference for ‘quick move-in homes’ and contribute to D.R. Horton’s growth.
Goldman Sachs has upgraded construction company D.R. Horton to a buy rating, noting that the company can outperform despite higher mortgage rates. The firm believes that D.R. Horton’s focus on home sale volume will help it succeed in the current market. Despite reducing its target price, Goldman Sachs still sees significant upside for the stock.
According to analyst Susan Maklari, the combination of tight inventory, buyer budgets, and the rapid increase in mortgage rates will drive consumer preference for ‘quick move-in homes’ and aid in the growth of D.R. Horton’s stock. Maklari predicts that the company will leverage its operating acumen and focus on the entry-level market to drive positive results and gain market share. Despite uncertainty surrounding interest rates in the short term, Maklari believes that D.R. Horton could still achieve a 6% increase in closings next year.
While mortgage rates have been rising sharply this year due to the Federal Reserve’s efforts to combat inflation, Maklari believes that D.R. Horton can still see success. The company’s management is expected to make use of improving cycle times and guidance for mid-single digit community count growth. Maklari forecasts a 5% increase in home sale revenues in fiscal year 2024, which is about 200 basis points ahead of the peer average. D.R. Horton’s stock has already seen a 16% increase this year.
Goldman Sachs’ upgrade of D.R. Horton reflects their confidence in the company’s ability to outperform the market despite higher mortgage rates. The firm believes that the combination of favorable market conditions and D.R. Horton’s strategic focus will lead to continued growth and financial success for the company.
Tags: Goldman Sachs, construction stock, D.R. Horton, mortgage rates, home sale volume, buy rating, housing market, market growth