Green & Gold Fund Recommendation: Buy D.R. Horton, Inc. (DHI )

Green & Gold FundRecommendation: Buy D.R. Horton, Inc. (DHI)

• Housing market indicators are strong• Room for recovery• Housing recovery began in mid 2011

• Financially sound• Overall, better than competitors

Key Investment Points

• Homebuilders and mortgage financiers• Major companies• DHI, PHM, MDC, RYL, NVR, KBH, LEN

• Home construction, sale, and financing• Also some deal in land acquisition and development

Industry Overview

Housing Starts

Housing Market Index

Construction Spending

S&P Case-Shiller HPI

New Home Sales

• Housing Starts (16 April)• 1.04 M (BC, prior .917 M)

• Housing Market Index (15 April)• 42 (MC, prior 44)

• Construction Spending (1 April)• M/M 1.2% (BC, prior M/M -2.1%

• S&P Case-Shiller HPI (26 March)• M/M 1.0% (C, prior M/M 0.9%)

• New Home Sales (23 April)• 417K (MC, prior 411K rev.)

Economic Data Summary

• Homebuilding and Financing• Constructs, sells, and finances

homes• Domestic market

• Acquired Breland Homes (2012)

• 2011 Revenue: $130 M

• Q2 2013 DHI Earnings

• 26 April at 10:00 AM Eastern

Previous Close 24.69

1 Year Target Price 24.00 – 26.00

52 Week Range 14.37 – 25.56

Average Volume (3M)

6.02 M

Market Cap. $7.06 B

P/E (ttm) 8.49

EPS (ttm) 2.8

Dividend and Yield 0.15 (0.60%)

Beta 1.27

Employees 3,500

DHI Company Profile

DHI Price Chart

DHI vs S&P vs XHB

DHI Financials

• Low numbers leading up to the housing crash• Recovering numbers coinciding with the better

housing numbers• Sales, revenue, net income, etc. are all

expected to rise

DHI Financials

Company Market Cap.

P/E Price to Book

Dividend (Yield)

TD/TA

ROA ROI ROE Profit Margin

DHI 7.72 B 8.49 2.10 0.15 (.64) 34.4 15.2 18.5 30.8 21.96

MDC 1.77 B 28.3 1.99 2.0 (2.78) 42.2 3.3 3.57 7.04 5.21

NVR 4.95 B 26.0 3.33 0 23.2 8.24 10.5 12.7 5.66

RYL 1.90 B 52.0 3.64 0.12 (.30) 58.7 2.41 2.90 8.81 3.24

TOL 5.70 B 11.9 1.84 0 36.5 8.67 10.1 17.1 25.9

PHM 7.61 B 36.8 3.43 0 115 3.03 3.46 10 15.7

KBH 1.84 B 5.11 0.14 (.46) 67.3 -2.32 -2.5 -15 -3.8

LEN 7.97 B 12.5 2.32 0.16 (.39) 48.6 6.74 7.34 21.9 16.01

Comparison to Industry

SWOT Analysis

Strengths Increase in Sales Order Backlogs Specialized Home BuildersIntegrated Operations

Weaknesses Weak Profitability IndicatorsBusiness Concentration: the United States

Opportunities Rising Demand of Senior Housing in the United StatesGrowth Trends: Echo Boomer PopulationReal Estate Market Outlook: United States

Threats Intense CompetitionStringent Government RegulationsGlobal Economic Scenario

• We should own DHI because:

• Housing market still has much room to recover

• DHI has good financials and can capitalize on the recovery

• Beware of financial news indicating slowdown

Investment Thesis

• Sector : Industrials and Materials• Industry Group: Residential Construction• Current Holdings: UPS, GE, XLI, GDX, XYL, and SAND

• Buy 250 shares of DHI at $24.00 (approximately $6000.00, 1.09% of portfolio)

Current Portfolio and Recommendation

Sector Target Allocation

Current Allocation

Remaining Allocation

Industrials 6.19% 5.77% 0.4%Materials 2.04% 3.61% -1.6%