NEW YORK (AP) — Fitch Ratings on Wednesday upgraded its outlook on homebuilder DR Horton's ratings, saying it expects better prospects for the housing industry this year.
The ratings firm changed its outlook to "Positive" from "Stable," which means Fitch sees at least a 40 percent chance that it will upgrade the builder's ratings at some point over the next 18 months.
Fitch also affirmed its ratings on the Fort Worth, Texas, homebuilder.
While Fitch expects improving prospects for the housing industry this year, the firm noted that the housing market continues to face challenges that are likely to "meaningfully moderate the early stages of this recovery."
Even so, D.R. Horton Inc. has the financial flexibility to navigate the market and continue to invest in land, Fitch said.
Like many other large builders, D.R. Horton aggressively reduced debt during the housing downturn.
The company's homebuilding debt fell from $5.5 billion as of June 2006 to its current level at $1.94 billion, Fitch said.
The builder typically buys land parcels already prepared for construction or enters into a contract with the seller giving it the option to acquire the land.
Fitch expects D.R. Horton will continue buying land and rolling out new home communities.
The builder has $662.2 million in unrestricted cash and marketable securities of $299.1 million, as of March 31.
D.R. Horton's cash flow from operations in the 12 months ended March 31 was a negative $46.6 million, Fitch said.
The firm expects that the homebuilder will remain cash-flow negative the rest of fiscal 2012.
While the housing market still has a long way to go to regain full health, recent housing data suggest a modest housing recovery is under way.
Sales of new and previously occupied homes are up from the same time last year. Home prices are rising in most markets. And homebuilders are starting more projects.
Fitch has raised its housing forecasts for 2012 since the beginning of the year. It now anticipates that builders will break ground on 12 percent more single-family homes this year than in 2011. And it predicts sales of newly built single-family homes will grow about 10 percent.
Fitch long-term issuer default and senior unsecured debt ratings for D.R. Horton are at "BB," two notches into Fitch's non-investment grade scale.
D.R. Horton shares added 39 cents, or 2.3 percent, to $17.25 in afternoon trading. They are near their 52-week high of $17.91 per share.