A challenging backdrop for the housing market has Bank of America unsure about D.R. Horton . Analyst Rafe Jadrosich downgraded the stock to neutral from buy. He also lowered his price target to $150 per share from $160. The new price target indicates just around 5% upside potential from where shares closed Friday. A high interest rate environment has led to a moderation in housing demand, per Jadrosich. In addition, rising input costs are pressuring the company’s gross margins, he added. “We believe DHI is prudently adjusting to a more challenging backdrop (slowing starts and increased share repurchase), but we expect margin headwinds to persist through F2025,” Jadrosich wrote in a Monday note. In addition, higher lot costs — which represent around 26% to 27% of total cost of goods — will be difficult to offset in a challenging macro environment, according to BofA. On a yearly basis, lot costs rose 10%, the company said on its most recent earnings call. Jadrosich added that D.R. Horton is already trading at a more expensive level relative to other homebuilders with similar return on equity. D.R. Horton’s “valuation [is] not compelling vs. peers,” according to the analyst. Shares are up just 1.7% over the past 12 months. Overall analyst sentiment on the stock is mixed. Just nine analysts have a buy or strong buy rating, on the homebuilder while the remaining 13 rate it as a hold or underperform, per LSEG.
