On Thursday, BTIG adjusted its outlook on Forestar Group (NYSE:FOR) shares, reducing the price target to $37.00 from the previous $41.00, while maintaining a Buy rating on the stock. The revision followed Forestar's fiscal third-quarter earnings per share (EPS) report of $0.76, which fell short of BTIG's $0.96 estimate and the consensus of $0.90.
The lower-than-expected results were attributed to fewer unit sales than projected, a higher ratio of selling, general and administrative expenses to sales, slightly reduced average pricing, and a tax rate that surpassed expectations.
Despite the earnings miss leading to a 13% decline in Forestar's shares on Thursday, BTIG still finds the investment appealing, noting the stock's valuation at 1.03 times book value.
The firm anticipates that Forestar's delivery volume consistency will improve in the upcoming quarter and beyond, with growth expected to accelerate. This outlook is supported by a 40% increase in lots under Forestar's control.
Forestar is also expanding its reach beyond its primary customer, D.R. Horton, having sold 352 lots to other builders during the quarter, accounting for 11% of sales. BTIG highlighted that government approvals have been a challenge, extending the cycle times for finished lot development. However, the past six months have demonstrated a stabilization in these cycle times, with some markets even seeing reductions, which could lead to a more consistent delivery volume.
Despite the near-term setbacks, BTIG remains optimistic about Forestar's long-term prospects. The firm believes that Forestar is well-positioned to capture market share in the vital but fragmented and undercapitalized land development sector of the housing market.
Following the recent earnings report, BTIG has revised its fiscal year 2024 EPS estimate for Forestar to $3.70 from $3.90 and the fiscal year 2025 EPS estimate to $3.95 from $4.20, incorporating a conservative approach to volume growth.
Management at Forestar has indicated that a 10% or higher growth rate is feasible, although BTIG's estimates reflect an 8.5% year-over-year increase. The Buy rating is reiterated with the new price target of $37.00.
In other recent news, Forestar Group Inc . reported a robust performance in its second quarter. The company's net income rose by 67% to $45 million, while consolidated revenues grew by 11% to $333.8 million. The number of lots sold also saw a 10% increase, reaching 3,289.
Forestar is planning significant investments in land acquisition and development, aiming to become a leading supplier of finished lots. The company's strategic growth plans include doubling its market share to 5% over the intermediate term and expanding its third-party builder business.
Forestar reaffirmed its fiscal 2024 guidance, with expected deliveries of 14,500 to 15,500 lots and revenues of $1.4 billion to $1.5 billion. The company also plans to invest $1.5 billion to $1.6 billion in land acquisition and development in fiscal 2024.
These recent developments show Forestar's commitment to growth and expansion, with a focus on delivering finished lots that meet market demand and pricing. The company is also expanding its team, with a particular focus on land acquisition and development, to support this growth.
InvestingPro Insights
Amid the recent earnings miss and subsequent stock price adjustment for Forestar Group (NYSE:FOR), InvestingPro data presents a broader picture of the company's financial health and market valuation. With a market cap of approximately $1.58 billion, Forestar is trading at a P/E ratio of 7.65, which is quite compelling when paired with its revenue growth of 29.0% over the last twelve months as of Q2 2024. These metrics suggest a company that, despite recent challenges, is managing to grow its top line at an impressive rate while maintaining a valuation that could be attractive to value investors.
InvestingPro Tips highlight that Forestar is trading at a low EBITDA valuation multiple and has liquid assets exceeding short-term obligations, providing some financial stability and flexibility. Furthermore, analysts predict the company will be profitable this year, which aligns with BTIG's positive outlook and buy rating. For readers looking to delve deeper into the investment potential of Forestar Group, there are additional InvestingPro Tips available that could guide investment decisions. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these exclusive insights.
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