Comparing Toll Brothers (TOL) & D.R. Horton (DHI)

Toll Brothers (NYSE: TOL) and D.R. Horton (NYSE:DHI) are both mid-cap construction companies, but which is the better investment? We will contrast the two businesses based on the strength of their institutional ownership, risk, valuation, analyst recommendations, dividends, earnings and profitability.

Profitability

This table compares Toll Brothers and D.R. Horton’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Toll Brothers 8.12% 10.44% 4.67%
D.R. Horton 7.38% 14.19% 8.55%

Analyst Ratings

This is a summary of current ratings and recommmendations for Toll Brothers and D.R. Horton, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Toll Brothers 1 8 7 0 2.38
D.R. Horton 0 6 10 0 2.63

Toll Brothers currently has a consensus price target of $40.36, indicating a potential downside of 5.71%. D.R. Horton has a consensus price target of $38.34, indicating a potential downside of 7.00%. Given Toll Brothers’ higher possible upside, research analysts plainly believe Toll Brothers is more favorable than D.R. Horton.

Insider & Institutional Ownership

80.7% of Toll Brothers shares are owned by institutional investors. Comparatively, 82.3% of D.R. Horton shares are owned by institutional investors. 8.8% of Toll Brothers shares are owned by insiders. Comparatively, 7.2% of D.R. Horton shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Toll Brothers and D.R. Horton’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Toll Brothers $5.64 billion 1.20 $534.39 million $2.69 15.91
D.R. Horton $13.67 billion 1.13 $1.64 billion $2.66 15.50

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

Dividends

Toll Brothers pays an annual dividend of $0.32 per share and has a dividend yield of 0.7%. D.R. Horton pays an annual dividend of $0.40 per share and has a dividend yield of 1.0%. Toll Brothers pays out 11.9% of its earnings in the form of a dividend. D.R. Horton pays out 15.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. D.R. Horton has increased its dividend for 5 consecutive years. D.R. Horton is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk and Volatility

Toll Brothers has a beta of 1.5, indicating that its share price is 50% more volatile than the S&P 500. Comparatively, D.R. Horton has a beta of 1.23, indicating that its share price is 23% more volatile than the S&P 500.

Summary

D.R. Horton beats Toll Brothers on 9 of the 17 factors compared between the two stocks.

About Toll Brothers

Toll Brothers, Inc. is engaged in designing, building, marketing, selling and arranging financing for detached and attached homes in luxury residential communities. The Company operates through two segments: Traditional Home Building and Toll Brothers City Living (City Living). Within the Traditional Home Building segment, it operates in five geographic segments in the United States: the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey and New York; the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania and Virginia; the South, consisting of Florida, North Carolina and Texas; the West, consisting of Arizona, Colorado, Nevada and Washington, and California. City Living is the Company’s urban development division. Its products include Traditional Home Building Product and City Living Product. Its Traditional Home Building Product includes detached homes, move-up, executive, estate, and active-adult and age-qualified lines of home.

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.

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