On Wednesday, Citi analysts adjusted their stance on Forestar Group (NYSE:FOR), reducing the price target to $32 from $39, though they continued to endorse the stock with a Buy rating. Currently trading at $24.32, the stock sits near its 52-week low of $23.80, having declined about 30% over the past year. According to InvestingPro analysis, Forestar appears undervalued based on its Fair Value metrics. The revision followed Forestar’s first-quarter performance, which did not meet expectations, partly due to a double-digit year-over-year decline in delivery volumes. According to the analysts, the fluctuations in delivery volumes are typical for Forestar on a quarter-to-quarter basis. Management at Forestar affirmed their full-year 2025 volume and revenue guidance, which forecasts 16,000 to 16,500 lots. They attributed the softer first-quarter volumes to a timing issue, with some volumes having been advanced into the fourth quarter of 2024.
Despite the first-quarter miss, Citi’s analysts believe Forestar’s ability to meet its volume targets remains unaltered. The company maintains strong fundamentals with a gross profit margin of 23.5% and an impressive InvestingPro Financial Health Score rated as "GREAT". However, they foresee margin pressures as a result of prolonged elevated interest rates. Consequently, the analysts have decreased their earnings estimates for fiscal years 2025 to 2027 by $0.25 each. This adjustment reflects both the first-quarter results and a revised margin outlook in light of the sustained high-rate environment.
Citi has also altered the multiple used to determine Forestar’s price target, shifting from a 1.1x next twelve months’ tangible book value (NTM TBV) multiple to a 0.9x multiple. This change is due to the anticipation of a more challenging margin landscape amid the ongoing high-interest rates. The stock currently trades at 0.76x book value, with a P/E ratio of 6.7x. Despite the lowered price target and the acknowledgment of a high-risk environment, Citi maintains a positive outlook on Forestar Group, reiterating their Buy rating. For deeper insights into Forestar’s valuation metrics and comprehensive analysis, access the full Pro Research Report available on InvestingPro.
In other recent news, Forestar Group Inc . experienced a challenging start to its fiscal year, with significant shortfalls in both earnings per share (EPS) and revenue compared to analysts’ expectations. The company reported Q1 2024 EPS of $0.32, falling short of the forecasted $0.70, and revenue of $250.4 million, below the projected $325.4 million. Despite these setbacks, Forestar expanded its operational reach, increasing its community count and entering new markets. The company plans to deliver up to 16,500 lots in fiscal 2025. Forestar remains optimistic about its future, projecting revenue between $1.6 billion and $1.65 billion for fiscal 2025. These are recent developments in the company’s performance.
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