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Bet Big on Housing Earnings With These ETFs

Sanghamitra Saha

D.R. Horton DHI, one of the biggest and well-known homebuilders in the nation, recently reported impressive fourth-quarter fiscal 2019 results. Both earnings and revenues beat the Zacks Consensus Estimate. The company’s shares have rallied 3.2% since the earnings release (as of Nov 13, 2019) (read: What Rising Rates? Technology to Aid Housing ETFs Ahead).

Let’s take a look inside the headline numbers:

Earnings came in at $1.35 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.25 by 8%. The reported figure also increased 11% from the year-ago quarter’s $1.22 per share.

Total revenues (Homebuilding, Forestar and Financial Services) came in at $5.04 billion, up 11.7% year over year. The reported figure also topped the consensus mark of $4.84 billion.

Home sales also increased 9.6% year over year to $4.79 billion, aided by higher home deliveries. It recorded growth across regions, including the East, Midwest, Southeast, West and South Central. Net sales orders were up 14% year over year. Revenues from the Financial Services segment jumped 32.3%.

PulteGroup PHM reported third-quarter earnings in late October, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. The stock has gained 5.9% in the past month (as of Nov 14, 2019).

Earnings per share came in at $1.01, beating the consensus mark of 92 cents by 9.8%. The bottom line, however, was flat year over year. Total revenues of $2.71 billion outpaced the consensus mark of $2.6 billion by 4.1% and increased 2.3% from the year-ago figure of $2.65 billion.

Meritage Homes (MTH) too released third-quarter results in late October. Earnings and revenues outpaced the Zacks Consensus Estimate on strong homebuying activity. Earnings of $1.79 per share trumped the consensus mark of $1.49 by 19.9%. Also, the reported figure improved 35% year over year, backed by home closing revenues, gross margins and greater overhead leverage. Home closing revenues amounted to $939.2 million, exceeding the consensus mark of $914 million by 2.3% and up 7% year over year.

Solid Zacks Ranks

The homebuilding industry belongs to a favorable Zacks industry (placed at the top 5% of 250+ industries). Most of the homebuilding stocks like DHI, PHM, MTH, KB Home KBH and Lennar Corporation LEN carry a Zacks #1 (Strong Buy) or #2 (Buy).

Housing ETFs mainly include SPDR S&P Homebuilders ETF XHB, iShares U.S. Home Construction ETF ITB and Hoya Capital Housing ETF HOMZ.

DHI holds the first spot in the 45-stock ITB, with a 13.44% weight, and the third position in the 35-stock XHB, with 4.68% exposure. HOMZ has, however, small allocation of 1.65% to this stock. PulteGroup gets 7.35% of ITB, 4.7% of XHB and 1.6% of HOMZ.

In a nutshell, though home sales have been subdued in recent times, things in the homebuilding space are not as bad as feared. Upbeat earnings performance and solid Zacks ranks make housing ETFs compelling buys right now.

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KB Home (KBH) : Free Stock Analysis Report
 
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
Meritage Corporation (MTH) : Free Stock Analysis Report
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
 
Hoya Capital Housing ETF (HOMZ): ETF Research Reports
 
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