D.R. Horton (DHI) may face near-term profitability pressure and weaker volumes as rising incentive costs and macro headwinds weigh on its outlook, Oppenheimer said Thursday in a report.

Oppenheimer cut estimates ahead of fiscal Q2, citing expected margin pressure in H2 and a lower fiscal 2026 closings forecast. Demand "remained steady" through late March, suggesting results could track close to company expectations, the report said.

Gross margin is projected to decline sequentially in Q3, diverging from Wall Street expectations for a modest increase, as "elevated mortgage rates" continue to drive promotional activity, Oppenheimer said. Even if incentives stay "flat," margin compression is likely as cost pressures, including "lot cost inflation," persist, the report said.

Closings could fall short of guidance if the company prioritizes "margin over pace" amid softer demand and slowing community growth, though lower inventory levels may give D.R. Horton flexibility to manage volumes and support margins, the report said.

D.R. Horton has a "less attractive" risk-reward profile tied to its "interest-rate-sensitive customer base," limited buyer diversity and rental-business volatility, the report said.

Oppenheimer has a perform rating on D.R. Horton stock.

Q2 results are due Tuesday.

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