D. R. Horton

Methodology

D.R. Horton's homebuilding business exhibits significant earnings cyclicality tied to mortgage rates, affordability, and housing demand, requiring careful normalization. The company can swing from peak profitability to losses within housing cycles. Fair value works best using mid-cycle assumptions for home prices, margins, and closings rather than peak or trough conditions.

Methodology

D.R. Horton typically trades at very low PEG ratios (0.3-0.8x) during strong housing markets, reflecting market anticipation of inevitable cyclical downturn. The company's scale and land strategy support above-average returns through cycles. PEG misleads for homebuilders because short-term earnings growth during upswings doesn't reflect sustainable long-term growth rates.

Methodology

D.R. Horton pays dividends yielding 1-2% plus significant special dividends during strong housing cycles, making PEGY more attractive than PEG. The company returns substantial cash through dividends and buybacks when profitability peaks. Total shareholder yield can exceed 5-8% during boom periods, though dividend sustainability through downturns remains uncertain.