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Category: Stock Market and LGI Homes
Date: 6 November 2019 Stock Price: $72.25 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of LGI Homes, a homebuilder active in areas such as Texas, Arizona, Florida, Alabama, Washington
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About LGI Homes
LGI Homes is one of the nation's fastest growing homebuilders engaged in the design and construction of homes across Texas, Arizona, Florida, Georgia, New Mexico, North Carolina, South Carolina, Colorado, Washington, Tennessee, Minnesota, Oklahoma, Alabama, Oregon, California, Nevada and West Virginia. Recently recognized as the 10th largest residential builder in America, based on units closed, our business model is based on skillfully building and selling high quality homes with well-designed floor plans. We are focused on the entry-level homebuyer, offering homes at affordable prices in attractive locations while utilizing a well-established sales and marketing approach, a culture of customer service excellence, and a highly efficient construction process. Our Terrata Homes brand enables us to extend our business model to the luxury market, offering homebuyers innovative designs, luxury features and exceptional craftsmanship accentuated by meticulous attention to detail. Since commencing operations in 2003, we have constructed and sold over 34,000 quality homes.
A home built by LGI Homes
Financial overview of LGI Homes 3rd quarter 2019 earnings report
Data below refers to the latest quarter's data unless specified otherwise
The summary below shows the revenues, number of house closings and average sales price (ASP) per region for LGI Homes for the 9 months ended September 2019:
Region Revenues ('000) Home Closings ASP
Central $441,138 2,072 $212,904
Northwest $214,891 589 $364,840
Southeast $178,984 879 $203,622
Florida $136,211 649 $209,878
West $108,016 471 $229,333
Total $1,079,240 4,660 $231,597
- Revenues: $483.081 million (up from $380.369 million for the same quarter of the previous year)
- Revenues increased by 27% over the last 12 months
- Cost of sales: $366.431 million (up from $283.035 million for the same quarter of the previous year)
- Cost of sales increased by 29.4% over the last 12 months
- Net income: $49.349 million (up from $37.723 million for the same quarter of the previous year)
- Diluted earnings per share: $1.93 (up from $1.52 for the same quarter of the previous year)
- Diluted number of shares in issue: 25.521 million (up from 24.896 million for the same quarter of the previous year)
- Cash and cash equivalents: $37.030 million
- Cash and cash equivalents per share: $1.45
- Cash and cash equivalents makes up 2% of LGI Homes' market capital
- Cash and cash equivalents makes up 2.26% of LGI Homes' total assets
- Real Estate Inventory: $1.480 billion
- Real Estate Inventory makes up 90% of LGI Homes' total assets
- Stockholders equity in LGI Homes: $777.047 million
- Stockholders equity per share: $30.44
- LGI Homes is trading at 2.37 times its stockholders equity per share which is well within the expected range of between 2 and 4 times that most firms tend to trade at
The summary below shows the revenues, number of house closings and average sales price (ASP) per region for LGI Homes for the 9 months ended September 2019:
Region Revenues ('000) Home Closings ASP
Central $441,138 2,072 $212,904
Northwest $214,891 589 $364,840
Southeast $178,984 879 $203,622
Florida $136,211 649 $209,878
West $108,016 471 $229,333
Total $1,079,240 4,660 $231,597
LGI Homes management commentary on their 3rd quarter 2019 earnings and earnings guidance
THE WOODLANDS, Texas, Nov. 05, 2019 (GLOBE NEWSWIRE) -- LGI Homes, Inc. (Nasdaq:LGIH) today announced results for the third quarter 2019 and the nine months ended September 30, 2019.
“We are proud to announce another record setting quarter at LGI Homes,” stated Eric Lipar, the Company's Chief Executive Officer and Chairman of the Board. “In addition, to a record setting 2,003 home closings, the quarter was also highlighted by record setting results across home sales revenues, average home sales price, community count and net income.”
“This has been a phenomenal year so far and our results have been outstanding. Through the first nine months of the year we closed 5,175 homes generating over $1.2 billion in home sales revenue. This momentum has carried through to the fourth quarter and in the month of October we saw continued demand for affordable homes and a positive response to lower interest rates.”
“With a solid start to the fourth quarter, we believe we are well positioned to finish the year strong and are optimistic about what the future holds. Therefore, we are updating our guidance for the remainder of 2019. For the full year 2019, we now anticipate closing between 7,100 and 7,600 homes, we believe average home sales price will be between $235,000 and $240,000, and we believe basic EPS will be in the range of $7.00 to $7.60 for the full year 2019. This guidance assumes that general economic conditions, including interest rates and mortgage availability for the remainder of the year, are similar to the third quarter of 2019,” Lipar concluded.
“We are proud to announce another record setting quarter at LGI Homes,” stated Eric Lipar, the Company's Chief Executive Officer and Chairman of the Board. “In addition, to a record setting 2,003 home closings, the quarter was also highlighted by record setting results across home sales revenues, average home sales price, community count and net income.”
“This has been a phenomenal year so far and our results have been outstanding. Through the first nine months of the year we closed 5,175 homes generating over $1.2 billion in home sales revenue. This momentum has carried through to the fourth quarter and in the month of October we saw continued demand for affordable homes and a positive response to lower interest rates.”
“With a solid start to the fourth quarter, we believe we are well positioned to finish the year strong and are optimistic about what the future holds. Therefore, we are updating our guidance for the remainder of 2019. For the full year 2019, we now anticipate closing between 7,100 and 7,600 homes, we believe average home sales price will be between $235,000 and $240,000, and we believe basic EPS will be in the range of $7.00 to $7.60 for the full year 2019. This guidance assumes that general economic conditions, including interest rates and mortgage availability for the remainder of the year, are similar to the third quarter of 2019,” Lipar concluded.
Outlook
Subject to the caveats in the Forward-Looking Statements section of this press release, the Company updates its prior 2019 guidance. The Company now believes it will have between 105 and 115 active selling communities at the end of 2019, close between 7,100 and 7,600 homes in 2019, and generate basic EPS between $7.00 and $7.60 per share during 2019.
In addition, the Company believes 2019 gross margin as a percentage of home sales revenues will be in the range of 23.5% and 24.5% and 2019 adjusted gross margin (non-GAAP) as a percentage of home sales revenues will be in the range of 26.0% and 27.0% with capitalized interest accounting for substantially all of the difference between gross margin and adjusted gross margin. The Company also believes that the average home sales price in 2019 will be between $235,000 and $240,000. This outlook assumes that general economic conditions, including interest rates and mortgage availability, in the remainder of 2019 are similar to those experienced in the third quarter of 2019 and that average home sales price, construction costs, availability of land, land development costs and overall absorption rates in the remainder of 2019 are consistent with the Company’s recent experience.
Subject to the caveats in the Forward-Looking Statements section of this press release, the Company updates its prior 2019 guidance. The Company now believes it will have between 105 and 115 active selling communities at the end of 2019, close between 7,100 and 7,600 homes in 2019, and generate basic EPS between $7.00 and $7.60 per share during 2019.
In addition, the Company believes 2019 gross margin as a percentage of home sales revenues will be in the range of 23.5% and 24.5% and 2019 adjusted gross margin (non-GAAP) as a percentage of home sales revenues will be in the range of 26.0% and 27.0% with capitalized interest accounting for substantially all of the difference between gross margin and adjusted gross margin. The Company also believes that the average home sales price in 2019 will be between $235,000 and $240,000. This outlook assumes that general economic conditions, including interest rates and mortgage availability, in the remainder of 2019 are similar to those experienced in the third quarter of 2019 and that average home sales price, construction costs, availability of land, land development costs and overall absorption rates in the remainder of 2019 are consistent with the Company’s recent experience.
LGI Homes (NASDAQ: LGIH) stock price history
The image below, obtained from Google, shows the stock price history of LGI Homes over the last 5 years. And its been a good old time for LGI Homes investors over the last 5 years. 5 years ago LGI Homes stock was trading at around $19.50 a share and its currently trading at $72.25 a share. That's a very healthy return of 271% provided to stockholders of LGI Homes over the last 5 years.
The stock of LGI Homes is trading at a lot closer to its 52 week high of $89 than it is to its 52 week low of $37.73 which to us is a clear indication that the short term momentum and sentiment of LGI Homes stock is positive.
The stock of LGI Homes is trading at a lot closer to its 52 week high of $89 than it is to its 52 week low of $37.73 which to us is a clear indication that the short term momentum and sentiment of LGI Homes stock is positive.
LGI Homes (NASDAQ: LGIH) stock price history over the last 5 years
Recent coverage of LGI Homes
The extract below discusses the latest regarding LGI Homes as obtained from TheStreet.com
In recent trading, shares of LGI Homes, Inc. (LGIH - Get Report) have crossed above the average analyst 12-month target price of $83.70, changing hands for $84.09/share. When a stock reaches the target an analyst has set, the analyst logically has two ways to react: downgrade on valuation, or, re-adjust their target price to a higher level. Analyst reaction may also depend on the fundamental business developments that may be responsible for driving the stock price higher — if things are looking up for the company, perhaps it is time for that target price to be raised.
In recent trading, shares of LGI Homes, Inc. (LGIH - Get Report) have crossed above the average analyst 12-month target price of $83.70, changing hands for $84.09/share. When a stock reaches the target an analyst has set, the analyst logically has two ways to react: downgrade on valuation, or, re-adjust their target price to a higher level. Analyst reaction may also depend on the fundamental business developments that may be responsible for driving the stock price higher — if things are looking up for the company, perhaps it is time for that target price to be raised.
A home built by LGI Homes
LGI Homes (NASDAQ: LGIH) stock valuation
Based on LGI Homes latest earnings report and their fiscal guidance provided what do we value their stock at? Based on the earnings reported and the fiscal guidance provided our valuation model provides a target (full value) price for LGI Homes stock at $95.70 a stock. We therefore believe that stock of LGI Homes is undervalued
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $95.70. We therefore believe a good entry point into the stock of LGI Homes is at $86.10 or below.
Since the stock of LGI Homes is trading at well below our recommended entry point into the stock we rate the stock of LGI Homes as a buy
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $95.70. We therefore believe a good entry point into the stock of LGI Homes is at $86.10 or below.
Since the stock of LGI Homes is trading at well below our recommended entry point into the stock we rate the stock of LGI Homes as a buy
Next earnings release of LGI Homes
It is expected that LGI Homes 4th quarter and full fiscal 2019 earnings report will be released in early February 2020