Bottom Feeding - DHI.NYSE, BLDR.NYSE, and AMR.NYSE
Two companies in the US homebuilding sector, and a metallurgical coal miner.
There were fairly slim pickings on the London Stock Exchange this week, so I decided to take a trip over the pond and look at three companies listed in New York.
D.R. Horton (DHI.NYSE)
DHI is the largest homebuilder by volume in the United States, operating in 126 markets across 36 states.
In the year ended 30 Sep 2024, it generated total revenue of $36,801.4m (FY23: $35,460.4m), gross profit of $9,535.4m (FY23: $9,350.4m), and net profit of $4,756.4m (FY23: $4,745.7m).
Total equity at 30 Sep 2024 was $25,312.8m (FY23: $22,696.2m), almost entirely tangible, and it had net debt of $1,373.7m (FY23: $1,220.9m).
DHI generated net cash flows from operations of $2,189.8m (FY23: $4,304.1m), and invested a net $190.6m into a mix of property and equipment purchases and business acquisitions (FY23: $310.2m). Free cash flow was $1,906.4m (FY23: $4,044.3m), which it used to pay $395.2m in dividends (FY23: $341.2m) alongside share repurchases totalling $1,787.5m (FY23: $1,178.5m).
Market capitalisation: $36,270m
Valuation: Using the FY24 figures, the shares currently offer a 13.1% earnings yield, 5.3% free cash flow yield, 1.1% dividend yield, 6.0% shareholder yield (dividends + share repurchases), and trade at 1.43x book value.
Reason: Home sales and margins have started to decrease due to the impact of higher interest rates on affordability and declining consumer confidence.
Interest level: Moderate - With a medium-to-long term outlook this could be an attractive entry point. Balance sheet seems pretty robust to weather a near-term market slump and management are capitalising on it through share repurchases.
Builders FirstSource (BLDR.NYSE)
BLDR supplies building materials, manufactured components, and construction services to professional contractors, sub-contractors, and consumers in the United States, with operations in 595 locations across 43 states.
In the year ended 31 Dec 2024, it generated total revenue of $16,400,492k (FY23: $17,097,330k), gross profit of $5,383,044k (FY23: $6,012,334k), operating profit of $1,595,249k (FY23: $2,176,319k), and net profit of $1,077,898k (FY23: $1,540,555k).
Total equity at 31 Dec 2024 was $4,296,470k (FY23: $4,732,351k), entirely intangible, and it had net debt including lease liabilities of $4,179,201k (FY23: $3,647,202k).
BLDR generated net cash flows from operations of $1,872,692k (FY23: $2,306,872k), and invested a net $710,719k into a mix of PP&E purchases and business acquisitions (FY23: $668,293k). Free cash flow was $1,429,012k (FY23: $1,782,015k), which it used for share repurchases totalling $1,517,131k (FY23: $1,811,517k), but didn't pay a dividend.
Market capitalisation: $11,900,000k
Valuation: Using the FY24 figures, the shares currently offer a 9.1% earnings yield, 12.0% free cash flow yield, and 12.7% shareholder yield.
Reason: Revenue and profit margins are continuing to fall due to a depressed market for new-builds.
Interest level: Moderate - Again, with a medium-to-long term outlook this could be an attractive entry point. But the company's balance sheet isn't the most robust out there, and I'm not sure how well it would fair if margins turned negative. Some of the money being spent on share repurchases and acquisitions might be better spent shoring up the balance sheet by paying down debt and building up cash.
Alpha Metallurgical Resources (AMR.NYSE)
AMR is a Tennessee-based metallurgical coal mining company with operations across Virginia and West Virginia.
In the year ended 31 Dec 2024, it generated total revenue of $2,957,285k (FY23: $3,471,417k), operating profit of $227,854k (FY23: $863,085k), and net income of $187,579k (FY23: $721,956k).
Total equity at 31 Dec 2024 was $1,649,497k (FY23: $1,573,928k), and it had net cash of $475,794k (FY23: $257,833k).
AMR generated net cash flows from operations of $579,919k (FY23: $851,159k), and spent $198,848k on capital expenditure (FY23: $245,373k). Free cash flow was $368,753k (FY23: $586,769k), which it used to pay $3,077k in dividends (FY23: $113,013k) alongside share repurchases totalling $122,299k (FY23: $540,071k).
Market capitalisation: $1,440,000k
Valuation: Using the FY24 figures, the shares currently offer a 13.0% earnings yield, 25.6% free cash flow yield, 0.2% dividend yield, 8.7% shareholder yield, and trade at 0.87x book value.
Reason: Revenue has dropped off from the historic highs seen over the prior few years.
Interest level: Moderate - The company seems to have done good things with the windfall it received, returning most of the cash to shareholders through dividends and share repurchases. However, the outlook from here depends on metallurgical coal prices going forwards.
Well that concludes this week's newsletter. If you own, or have studied any of the companies profiled, please share any additional insights you might have in the comments. See you next week for some more bottom feeding.