Monday, Oppenheimer adjusted its outlook on shares of Landsea Homes Corp. (NASDAQ: LSEA), increasing the price target to $15.00 from the previous $14.00, while reiterating an Outperform rating on the stock. The revision reflects the firm's analysis of the company's second-quarter earnings reported last Thursday.
The firm updated its financial model to account for the earnings of the second quarter of 2024. The forecast for the full-year 2024 earnings per share (EPS) has been set at $1.46, which is a slight decrease from the prior estimate of $1.54. This adjustment is due to higher revenues being offset by a lower gross margin. Conversely, the anticipated EPS for 2025 has been raised to $1.85 from the earlier projection of $1.74, attributed to an increase in revenue expectations.
The analyst from Oppenheimer cited several factors that could drive substantial growth for Landsea Homes in the coming years. One of the primary drivers is the company's organic expansion coupled with the integration of several acquisitions.
It is expected that volume growth will surpass the increase in general and administrative expenses and expense inflation. This is anticipated to result in a lower selling, general and administrative (SG&A) expense percentage and, consequently, higher profit margins.
Furthermore, the analyst expects improvements in the company’s leverage profile. Landsea Homes is also likely to continue implementing a balanced capital allocation strategy. These elements are believed to contribute to potential multiple expansions for the homebuilder's stock.
In other recent news, Landsea Homes Corporation reported a remarkable Q2 performance with a 47% surge in revenue to $431 million. The company also exceeded its home delivery guidance by delivering 760 new homes, reflecting a 35% increase year-over-year. These recent developments indicate a strong financial position for the company, underscored by a firm net debt-to-cap ratio and robust liquidity.
Analysts noted the company's financial strategy of growing its homebuilding platform while maintaining a stable financial position. Landsea Homes also anticipates home deliveries of 625-700 in Q3 and 1,000-1,100 in Q4, with average selling prices between $495,000 and $510,000. Adjusted gross margins are expected to be 20%-21% in Q3 and 23%-24% in Q4.
Despite facing challenges like volatile interest rates and recalibrating land pricing, the company is focusing on increasing home deliveries and expanding its community count organically. Landsea Homes also aims to maintain a competitive edge through its unique value proposition and product differentiation. The company's future plans include targeting first-time homebuyers and strengthening its luxury position in the market.
InvestingPro Insights
As Landsea Homes Corp. (NASDAQ: LSEA) garners attention following Oppenheimer's optimistic outlook, real-time data from InvestingPro enriches the investment picture for those eyeing the homebuilder's stock. With a market capitalization of approximately $425.87 million, Landsea Homes is navigating the market with a P/E ratio that stands at 18.09, reflecting investor sentiment on its earnings capability. The adjusted P/E ratio for the last twelve months as of Q2 2024, however, dips to a more attractive 10.51, suggesting a potentially undervalued status when considering historical earnings.
InvestingPro Tips highlight that management's aggressive share buyback strategy could signal confidence in the company's value proposition. Moreover, analysts anticipate a sales growth in the current year, which could be a catalyst for the stock's performance. On the flip side, Landsea's weak gross profit margins, as evidenced by a 17.35% margin in the last twelve months as of Q2 2024, could be a point of concern for investors seeking robust profitability.
Despite recent volatility, with a 39.1% strong return over the last month and a 20.04% return over the last three months, Landsea Homes has shown resilience in its stock price. For investors interested in the company's financial health, it's noteworthy that liquid assets exceed short-term obligations, which may offer some degree of security against market downturns. Interested readers can find additional insights and tips, including a total of nine InvestingPro Tips for Landsea Homes, at InvestingPro.
With an eye towards future earnings, it's important to note that analysts predict the company will be profitable this year, a sentiment reflected in the anticipated EPS growth for 2025. For those considering an investment, the fair value as per analyst targets stands at $15.50, offering a potential upside from the previous close price of $11.74. However, InvestingPro's fair value estimate is $8.66, suggesting a more conservative valuation. As the next earnings date approaches on October 31, 2024, investors will be watching closely to see if Landsea Homes can maintain its momentum and capitalize on the growth opportunities identified by Oppenheimer.
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