D.R. Horton, Inc. DHI continues its acquisition spree, as the company recently acquired Terramor Homes, one of the leading homebuilders in Raleigh, North Carolina. D.R. Horton expects to pay about $60 million in cash for the buyout.

With this acquisition, it now holds around 305 lots, 156 homes in inventory and 63 homes in sales order backlog. The company also has control of about 535 lots through option contracts. Notably, Terramor closed 273 homes and generated $85.7 million revenues in the trailing 12 months ended Nov 30, 2018.

Recent Buyouts

Earlier this month, D.R. Horton expanded its footprint in the Midwest of the United States with the acquisition of Classic Builders, one of the largest homebuilders in Des Moines, IA, for $60 million. With the addition of Classic Builders, D.R. Horton acquired 670 lots, 130 homes in inventory along with 40 homes in sales order backlog. The company also received control of 550 lots through option contracts. Terramor as well as Classic Builders will operate as separate divisions under the D.R. Horton group.

The company has been acquiring homebuilding companies in desirable markets at a fast pace. In the fiscal third quarter, it took over two small private builders for approximately $18 million. Apart from this, the most notable one is the October 2017 acquisition of 75% shares of Forestar Group, a residential and mixed-use real estate development company. The deal aided the Fort Worth, TX-based homebuilder to expand operations in Texas.

Apart from the company’s solid inorganic drive, D.R. Horton is focused on growing its top line and pre-tax profits at a double-digit pace annually, while generating higher annual operating cash flow and returns. In fact, earnings and revenues in fiscal 2018 were up 41% and 14% year over year. The company completed 51,857 homes in the fiscal year, up 13% from fiscal 2017.

Moreover, this Zacks Rank #3 (Hold) company’s pre-tax income increased 29%, margin improved 140 basis points (bps) to 12.8% and homebuilding return on inventory was up 360 bps to 20.2%. Additionally, homebuilding cash flow from operations was $1 billion, marking a fourth straight year of positive operating cash flow generation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, factors like increasing land and labor costs, rising material costs, as well as higher mortgage rates are major causes of concern. Although shares of the company, which shares space with Lennar LEN, KB Home KBH and PulteGroup PHM in the Zacks Homebuilding industry, have outperformed its industry, the same declined 30.1% so far this year.


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