Housing ETFs Tack On Gains On D.R. Horton Q4 Earnings

D.R. Horton (DHI), one of the biggest and well-known homebuilders of the nation, came up with strong fiscal fourth-quarter 2015 results on November 10 before the bell and also provided a strong outlook. Investors’ reacted favorably as DHI stock was about 11.3% up in the two days post earnings release. Let’s take a look inside the headline numbers:

Q4 Numbers in Detail

The company’s earnings of 64 cents per share came ahead of the Zacks Consensus Estimate of 62 cents and grew 33.3% year over year. Homebuilding revenues of $3.09 billion grew 27.7% year over year and surpassed the Zacks Consensus Estimate of $3.05 billion by 1.3%. Home sales increased 27% year over year.

Buoyant Outlook

Notably, the housing market is in a rebounding mode and D.R. Horton believes it is well positioned to meet this rising demand on the back of a robust community count, finished lot supply and inventory of homes available for sale.

Dividend Hike

If this was not enough, the company gifted investors with a 28% dividend hike announcement.

Quarterly cash dividend of 8 cents per common share is payable on December 14, 2015 to stockholders as of November 30.

ETF Impact

The bullishness over such an important homebuilding stock caused a rally in the broad housing ETFs as confusion appeared to fade in the industry. In September, homebuilder confidence jumped to the highest level in about 10 years. Elevated demand for homes along with inadequate supply should keep home prices higher (read: Winning ETF Strategies for Q4).
 

Housing ETFs include SPDR S&P Homebuilders ETF (XHB), iShares U.S. Home Construction ETF (ITB) and ETRACS ISE Exclusively Homebuilders ETN (HOMX).

DHI takes the top spot in ITB and HOMX with about 12% weight in each and the fourteenth position in XHB with 3.3% exposure. Both ITB and XHB have a Zacks ETF Rank #2 (Buy). Both funds added about 1.7% and 3.7% in the last two days (as of November 11, 2015) (read: Should You Buy Housing ETFs Now?).

Bottom Line

The housing sector has been a strong performer this year. Riding on this strength, ITB and XHB are up 7.3% and 5.5% so far this year. Though a potential rate hike as soon as December can act as a bump on the way to the housing ETFs’ rally (as it is a rate-sensitive sector), investors’ seem to pay more heed to the underlying sector strength, rather than the Fed tightening. Moreover, much of the Fed lift-off worries appear to be priced in at the current level. As a result, the near-term outlook for the sector appears decent.

Furthermore, the DHI stock has a Zacks ETF Rank #3 (Hold), a Growth style score of ‘A’ and Momentum style score of ‘B’, at the time of writing. If you believe that these style scores will bear fruit in the near term, consider the aforementioned ETFs for some quality exposure to this corner of the investing world as you can always rule out company-specific risks through the basket approach (read: 3 Excellent ETFs for a Low Cost Diversified Portfolio). 

Disclosure: Zacks.com contains statements and statistics that have ...

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