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

Analyst Ratings

This is a summary of recent recommendations for D.R. Horton and Toll Brothers, as provided by MarketBeat.com.

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

D.R. Horton presently has a consensus price target of $37.78, suggesting a potential downside of 8.03%. Toll Brothers has a consensus price target of $40.36, suggesting a potential downside of 5.49%. Given Toll Brothers’ higher probable upside, analysts clearly believe Toll Brothers is more favorable than D.R. Horton.

Dividends

D.R. Horton pays an annual dividend of $0.40 per share and has a dividend yield of 1.0%. Toll Brothers pays an annual dividend of $0.32 per share and has a dividend yield of 0.7%. D.R. Horton pays out 15.0% of its earnings in the form of a dividend. Toll Brothers pays out 11.9% 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. Toll Brothers has increased its dividend for 5 consecutive years.

Institutional & Insider Ownership

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

Profitability

This table compares D.R. Horton and Toll Brothers’ 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%
Toll Brothers 8.12% 10.44% 4.67%

Valuation & Earnings

This table compares D.R. Horton and Toll Brothers’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
D.R. Horton $13.67 billion 1.12 $1.64 billion $2.66 15.44
Toll Brothers $5.64 billion 1.20 $534.39 million $2.69 15.88

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.

Risk and Volatility

D.R. Horton has a beta of 1.24, suggesting that its share price is 24% more volatile than the S&P 500. Comparatively, Toll Brothers has a beta of 1.5, suggesting that its share price is 50% more volatile than the S&P 500.

Summary

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

D.R. Horton Company Profile

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.

Toll Brothers Company Profile

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.

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