Friday, 19 July 2024
by BD Banks
Residential land developer Forestar Group (NYSE: FOR) delivered results that fell short of expectations and provided little reason for investors to get excited about the quarters ahead.
Wall Street is taking note, sending Forestar shares down 15% as of 11:15 a.m. ET.
Forestar isn’t a home builder, but it is tied closely to the industry. The company, which is majority-owned by D.R. Horton, acquires and develops lots in 60 markets across 24 states.
Forestar earned $0.76 per share on revenue of $318.4 million in its fiscal third quarter ending June 30, shy of the $0.88 per share in earnings on sales of $380 million that analysts had expected. The company sold 3,255 lots in the quarter, including 352 sold to customers other than D.R. Horton. That total was down 15% year over year.
The company is taking advantage of a slowdown in building to stock up on inventory. Forestar’s lot position as of June 30 was 102,100, up 40% year over year, which includes 57,900 owned lots and 44,200 that are controlled through land purchase contracts.
For the full fiscal year, Forestar reiterated previous expectations for $1.4 billion to $1.5 billion in revenue. That’s a bit below the $1.51 billion consensus estimate. The company did boost its estimate on full-year lot deliveries by 100 to 14,600-15,100.
CEO Donald J. Tomnitz is bullish on the future, saying “the supply of vacant developed lots, particularly at affordable price points, continues to be constrained across most of the country, and Forestar is uniquely positioned to take advantage of the shortage of finished lots for the homebuilding industry.”
The company has a contracted backlog, and a reliable customer in D.R. Horton.
The issue is how long it will take for the market to turn and for homebuilders to start ramping up production. That’s likely tied to interest rates and the health of the economy. If recent history is a guide, a turnaround could take longer than expected.
Forestar has a unique role in the housing market and deserves investor attention. But it might take time for the bull case to play out.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.