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• Goldman Sachs upgraded DR Horton Inc to "buy" on Monday.
• Analyst Susan Maklari explained why in a research note today.
• DR Horton stock has lost about 20% over the past three months.

DR Horton Inc (DHI) has lost about 20% over the past three months but a Goldman Sachs analyst is convinced that the story moving forward will be a different one.

DR Horton stock should be worth $131

Susan Maklari upgraded the homebuilder this morning to “buy” and said its shares could climb to $131 which represents a near 26% upside from here.

The analyst expects tight inventory and higher mortgage rates to bode well for “quick move-in homes” and by extension – for the DR Horton stock.

The US housing market is a stalemate for consumers

30-year mortgage rates have reached levels unseen in 2 decades

As a result, buying conditions have plummeted to levels only seen once since 1960, which ended in a major recession

In other words: People don’t want to buy homes… pic.twitter.com/DkBMSfzDxT

— Game of Trades (@GameofTrades_) October 13, 2023

The construction giant is expected to report its quarterly earnings in the first week of November. The consensus is for it to earn $3.97 a share versus $4.67 per share a year ago.

Despite the recent sell-off, “DHI” is still up roughly 15% versus the start of 2023.

Susan Maklari’s expectations for 2024

The widely followed 30-year fixed mortgage rate currently sits near 8.0% – levels not seen in more than twenty years.

Still, Susan Maklari is confident that the New York listed firm can manage up to a 6.0% increase in closings next year on the back of “focus on entry level while maintaining a steady starts pace”.

She expects the management to guide for a 5.0% annualised growth in home sale revenues for fiscal 2024 – about 200 basis points above the peer average.

Note that legendary investor Warren Buffett invested more than $700 million in DR Horton stock this year in the second quarter. “DHI” currently pays a dividend yield of about 1.0%   

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