On Wednesday, BTIG has increased the price target for Forestar Group (NYSE: NYSE:FOR) to $40.00 from the previous target of $37.00. The firm has also reiterated its Buy rating on the stock. This adjustment follows Forestar's fourth fiscal quarter earnings, which exceeded expectations. The company reported earnings per share (EPS) of $1.60, surpassing BTIG's estimate of $1.29 and the consensus estimate of $1.31.
The analyst noted that Forestar's performance was bolstered by several factors including higher sales and pricing, improved margins, and reduced sales, general and administrative expenses relative to sales. These positives were slightly offset by a higher than anticipated tax rate. The demand for lots remains robust, as indicated by 36% of Forestar's total owned lots currently under contract, compared to 29% at the same time last year.
Forestar Group has seen improvements in "construction" times due to better contractor and material availability, with cycle times decreasing by 60 days sequentially and 90 days from the peak. However, the analyst also pointed out that government entitlement and approval times are still on the rise.
Despite regulatory delays, BTIG views the company's operational efficiencies favorably. The firm anticipates that Forestar's significant investments in headcount and land throughout fiscal year 2024 will enable it to gain additional market share in the highly fragmented industry by fiscal year 2025. Forestar's expansion into Virginia and its reentry into Washington, Oregon, and Utah positions it well for growth against smaller, local competitors who may be under-capitalized.
The firm believes that Forestar's value proposition remains very attractive considering the current supply and demand landscape. It also expects that Forestar will continue to increase its lot share with D.R. Horton (DHI, Buy, $186 price target) over the coming years. Following the earnings report, BTIG has made slight adjustments to its future estimates for Forestar, with fiscal year 2025 revenue now expected to be $1.67 billion, up from $1.64 billion, and EPS forecasted at $4.05, increased from $3.95.
In other recent news, Forestar Group Inc . has announced significant changes to its Board of Directors. The company confirmed the resignation of Director G.F. (Rick) Ringler, III, and the appointment of two new independent directors, Kellie L. Fischer and George W. Seagraves, II. Ringler, who held various committee positions, stepped down without citing disagreements with the company's operations or practices.
Fischer, currently the Executive Vice President and Chief Financial Officer of Rangers Baseball Express LLC, brings financial expertise to the board, while Seagraves, a retired North Region President at D.R. Horton, Inc., offers leadership experience. Both new directors will join the Audit Committee, Compensation Committee, and Nominating and Governance Committee, with Seagraves also assuming the role of Chair of the Nominating and Governance Committee.
The appointments expand Forestar Group's Board to six directors, five of whom are independent. Fischer and Seagraves are set to receive compensation as non-employee directors and were each granted restricted stock units valued at $140,000, vesting over three years. These are recent developments in the company's governance structure.
InvestingPro Insights
Forestar Group's recent performance aligns with several key metrics and insights from InvestingPro. The company's P/E ratio of 7.96 and PEG ratio of 0.26 suggest that it's trading at a relatively low valuation compared to its earnings growth, supporting BTIG's positive outlook. This is further reinforced by an InvestingPro Tip indicating that Forestar is "Trading at a low P/E ratio relative to near-term earnings growth."
The company's strong financial position is evident from its revenue of $1.51 billion over the last twelve months, with a notable revenue growth of 18.86% during the same period. This growth trajectory supports BTIG's expectation of Forestar's ability to gain market share and expand into new territories.
Another InvestingPro Tip highlights that Forestar "Operates with a moderate level of debt," which could provide the company with financial flexibility to pursue its expansion plans as outlined in the BTIG analysis.
For investors seeking more comprehensive insights, InvestingPro offers 13 additional tips for Forestar Group, providing a deeper understanding of the company's financial health and market position.
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