D.R. Horton (DHI) and LGI Homes (NASDAQ:LGIH) Critical Analysis

D.R. Horton (NYSE: DHI) and LGI Homes (NASDAQ:LGIH) are both construction companies, but which is the better business? We will contrast the two businesses based on the strength of their analyst recommendations, profitability, valuation, institutional ownership, dividends, risk and earnings.

Volatility and Risk

D.R. Horton has a beta of 1.25, suggesting that its stock price is 25% more volatile than the S&P 500. Comparatively, LGI Homes has a beta of 0.07, suggesting that its stock price is 93% less volatile than the S&P 500.

Institutional and Insider Ownership

82.4% of D.R. Horton shares are held by institutional investors. Comparatively, 88.2% of LGI Homes shares are held by institutional investors. 7.2% of D.R. Horton shares are held by company insiders. Comparatively, 13.6% of LGI Homes shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Earnings and Valuation

This table compares D.R. Horton and LGI Homes’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
D.R. Horton $13.67 billion 0.98 $1.64 billion $2.66 13.42
LGI Homes $940.22 million 1.06 $129.13 million $3.78 12.16

D.R. Horton has higher revenue and earnings than LGI Homes. LGI Homes is trading at a lower price-to-earnings ratio than D.R. Horton, indicating that it is currently the more affordable of the two stocks.

Dividends

D.R. Horton pays an annual dividend of $0.40 per share and has a dividend yield of 1.1%. LGI Homes does not pay a dividend. D.R. Horton pays out 15.0% of its earnings in the form of a dividend. LGI Homes has raised its dividend for 5 consecutive years.

Profitability

This table compares D.R. Horton and LGI Homes’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
D.R. Horton 7.38% 14.19% 8.55%
LGI Homes 9.22% 23.65% 10.25%

Analyst Recommendations

This is a breakdown of current recommendations for D.R. Horton and LGI Homes, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
D.R. Horton 0 6 9 0 2.60
LGI Homes 0 4 1 0 2.20

D.R. Horton presently has a consensus price target of $36.70, suggesting a potential upside of 2.83%. LGI Homes has a consensus price target of $43.00, suggesting a potential downside of 6.48%. Given D.R. Horton’s stronger consensus rating and higher probable upside, research analysts plainly believe D.R. Horton is more favorable than LGI Homes.

Summary

LGI Homes beats D.R. Horton on 9 of the 17 factors compared between the two stocks.

About D.R. Horton

D.R. Horton, Inc. is a homebuilding company. The Company constructed and sold homes in 27 states and 79 markets, as of September 30, 2015. The Company’s segments include its 39 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company’s 39 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets.

About LGI Homes

LGI Homes, Inc. is a homebuilder and land developer. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company operates through five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location.

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