D.R. Horton, Inc.

DHI Details

D.R. Horton, Inc. (NYSE: DHI) is the largest US-based homebuilder by volume and is involved in building and selling single-family houses in the entry-level and move-up markets. Its business operations are spread in 96 markets across 30 states in the Southeast, South Central, West, East, Midwest, and Southwest regions in the US. The company has three reportable segments, namely, 1) Homebuilding, 2) Forestar, and 3) Financial Services.

Q3FY21 Geographic Revenue Segregation (Q3FY21 Investor Presentation, July 22, 2021)

Senior Notes Offering: On August 05, 2021, DHI closed the underwritten public offering of USD 600 million aggregate principal amount of 1.3% senior notes due 2026. The net proceeds from the offering, which amounted to USD 595.9 million after underwriting discounts, will be used for general corporate purposes. The notes will mature on October 15, 2026, subject to earlier redemption/repurchase, and are guaranteed by most of the company's homebuilding subsidiaries.

Q3FY21 Results: The company's total revenues increased 35.15% in Q3FY21 (ended June 30, 2021) to USD 7.28 billion, compared to USD 5.39 billion in Q3FY20. Net sales orders for Q3FY21 decreased 17% YoY to 17,952 homes. Net income for Q3FY21 increased to USD 1.12 billion from USD 630.7 million in Q3FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 1.94 billion and total debt of USD 4.42 billion. During the quarter, DHI repurchased 2.6 million common shares for USD 241.2 million, with USD 758.8 million remaining under the stock repurchase authorization at quarter-end.

Key Risks: The homebuilding and lot development industries are cyclical and are dependent on changing economic conditions. Unfavorable real estate market or other conditions such as employment levels, consumer spending, availability of financing, housing demand, etc., may adversely affect DHI's financial performance.

Outlook: As of September 20, 2021, the company expects its Q4FY21 revenues to range from USD 7.7 to 7.9 billion, bringing its total estimated range for FY21 revenues to USD 27.4 – 27.6 billion (representing a YoY increase of 35% to 36%). In addition, its total homes closed range for Q4FY21 and FY21 is 21,300 – 21,700 homes and 81,300 – 81,700 homes, respectively.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DHI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: DHI's stock price decreased 10.36% in the past six months and is currently close to the mid-point of its 52-week range of USD 64.32 to USD 106.89. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.94. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 105.65. Considering the correction in the stock price, decent profit margins, encouraging outlook, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the current price of USD 83.49, up 0.24% as of October 12, 2021, 11:18 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Medifast, Inc.

MED Details

Medifast, Inc. (NYSE: MED) manufactures, distributes, and sells weight reduction, weight management, and other nutritional and health-related products under the OPTAVIA brand. MED has established a unique business model in which subscription-based meal-plan purchases account for 91% of its revenue by combining aspects of direct selling and utilizing a specific direct-to-consumer sales strategy. MED has also entered the Asia Pacific sector, with offices in Hong Kong and Singapore. As of October 12, 2021, the company's market capitalization stood at USD 2.25 billion.

Launch of a New App: On August 11, 2021, MED announced the launch of the OPTAVIA app, a new digital tool for clients that includes Fit & Greens recipes and access to purchase history, auto-ship statistics, and other pertinent information. This app is exclusively available to OPTAVIA community members and will be updated regularly depending on user input.

Robust H1FY21 Results: Due to an increase in active earning OPTAVIA Coach count and productivity per active earning, the company recorded a rapid 84.42% rise in revenues to USD 734.86 million in H1FY21 (ended June 30, 2021) compared to USD 398.46 million in H1FY20. As a result, its net income increased to USD 88.03 million in H1FY21, compared to USD 40.41 million in H1FY20. In addition, the firm has USD 197.43 million in cash and cash equivalents (including investment securities) as of June 30, 2021, with no outstanding debt.

In addition, MED announced a quarterly cash dividend of USD 1.42 per share on September 09, 2021, which will be paid on November 08, 2021, to shareholders of record on September 21, 2021. Over the last five years, the firm has regularly paid dividends, as seen in the figure below (every D represents a dividend payment).

Consistent Dividend Yield (Source: REFINITIV)

Key Risks: Third-party manufacturers supply a significant portion of MED's food and other products. As a result, if it cannot obtain adequate quantities, quality, and variety of foods from these manufacturers in a timely and cost-effective manner, MED's ability to efficiently fulfil its clients' orders may be harmed, resulting in a decline in its financial condition.

Outlook: According to its Q2FY21 press release, MED expects FY21 revenues to be in the region of USD 1.425 – 1.525 billion, with EPS ranging from USD 12.70 – 14.17, based on an effective tax rate of 23.25 – 24.25%.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MED Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MED' share price has fallen 31.54% in the past three months and is currently leaning towards the lower-band of the 52-week range of USD 139.59 to USD 336.99. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 32.42 We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 235.42. Considering the significant dip in the stock price, strong track record, constant dividend yield, healthy ROE, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 189.33, down 1.36% as of October 12, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

Disclaimer

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