On Wednesday, JPMorgan (NYSE:JPM) adjusted its price target for Forestar Group (NYSE:FOR), a real estate development company, to $36.00, down from the previous $37.50, while keeping a Neutral rating on the stock. This revision follows the company’s third-quarter earnings conference call for the period ending in June 2024.
Forestar Group reported quarterly closings and revenue that met expectations, but the firm slightly lowered its full-year 2024 closings guidance by 1% due to longer cycle times. The new forecast anticipates 14,600 to 15,100 closings, marking a 4-7% year-over-year increase, which is a reduction from the prior estimate of 15,850. Despite this adjustment, the company's full-year 2025 revenue guidance remains unchanged at $1.4 to $1.5 billion, although it is expected to hit the lower end of this range, considering the year-to-date closing Average Selling Price (ASP) trends.
As a result of the updated guidance and third-quarter outcomes, JPMorgan has revised its fiscal year 2024 and 2025 Operating Earnings Per Share (EPS) estimates for Forestar Group to $3.72 and $3.99, respectively, down from the earlier projections of $3.87 and $4.19. The new December 2024 price target is based on a target multiple of approximately 9 times the firm's fiscal year 2025 estimated EPS.
JPMorgan justifies the target multiple, which is about one turn above the average for smaller-cap homebuilders, by citing Forestar Group’s long-term and unique growth prospects within the land development sector. Additionally, the valuation reflects the risks associated with the company’s concentration of customers and its smaller market capitalization. The maintained Neutral rating suggests that the expected upside for Forestar Group is roughly in line with the broader homebuilder market.
InvestingPro Insights
Following JPMorgan's updated price target for Forestar Group, InvestingPro data and insights offer additional context for investors. The company's market capitalization currently stands at $1.55 billion, with a P/E ratio of 7.91, suggesting that the stock is trading at a low earnings multiple. This is further supported by an adjusted P/E ratio of 8.18 over the last twelve months as of Q3 2024. Despite recent volatility, evidenced by a one-week price total return of -11.39%, Forestar Group's fundamentals show a revenue growth of 18.86% during the same period, indicating potential for future expansion.
InvestingPro Tips highlight Forestar Group's low valuation multiples, such as a P/E ratio relative to near-term earnings growth and a low EBITDA valuation multiple, which could appeal to value investors. Additionally, analysts have revised their earnings upwards for the upcoming period, reflecting optimism about the company's profitability. For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, providing a comprehensive look at Forestar Group's financial health and market position. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription for access to these valuable insights.
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