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Housing is a hot topic these days with many Americans, and while the input costs have naturally gone up for new builds since COVID, so too have homebuilders’ desire to cut costs, corners, and boost profit margins.
If you go to social media, there’s no lack of posts/videos made by people who are angry about the “shoddy” work of homebuilders these days.
One area that is of interest is D.R. Horton’s (DHI) reserves for legal claims. One could argue that the decline in the average selling price of their new builds has only exacerbated their need to maintain profit margins.
Because of this, they’ve ‘arguably’ hired poor contractors, used subpar materials, rushed jobs, and cut corners to achieve that.
As a percentage of revenue, it’s been on the rise over the last few years and, through the first nine months of FY’26, now represents 4.8% of revenue, up ~60bps y/y.
The question investors should ask themselves is, when does this eventually catch up with them, if at all?
Source: Company filings.
Source: Company filings.
Until next time,
Paul Cerro | Cedar Grove Capital Management
Personal Twitter: @paulcerro
Fund Twitter: @cedargrovecm
Fund Website
Disclaimer: All information provided herein by Cedar Grove Capital Management, LLC (“CGCM”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
CGCM may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. CGCM may buy, sell, or otherwise change the form or substance of any of its investments. CGCM disclaims any obligation to notify the market of any such changes.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of CGCM. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or other reasons. Statements concerning financial market trends are based on current market conditions, which are subject to fluctuation. Any statements of opinion constitute only current opinions of CGCM, which are subject to change and which CGCM does not undertake to update. Due to, among other things, the volatile nature of the markets, an investment in our separately managed account structure will only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal, and tax professionals before making any investment.