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On Monday, JPMorgan analyst Michael Rehaut adjusted the price target for LGI Homes (NASDAQ:LGIH) shares, reducing it to $52 from the previous $65, while maintaining an Underweight rating on the stock. The new target comes as the stock trades near its 52-week low of $52.48, having declined over 50% in the past six months. According to InvestingPro data, the company currently trades at a P/E ratio of 6.85, suggesting a relatively low earnings multiple. Rehaut’s reassessment follows LGI Homes’ first quarter 2025 conference call, after which he revised his expectations for the company’s financial performance.
LGI Homes confirmed its 2025 closings forecast, which ranges between 6,200 to 7,000 units, marking a year-over-year increase of 3-16%. The average selling price (ASP) for closed homes is anticipated to be between $360,000 and $370,000, consistent with the company’s previous estimates. The year-end community count is also expected to rise to 160-170, up 6-13% from the prior year. However, LGI Homes decreased its gross margin guidance to 21.7-23.2%, a drop of 100-250 basis points from the earlier range of 23.2-24.2%. InvestingPro analysis reveals that the company’s last twelve months gross profit margin stands at 24.02%, with 13 key investment insights available to subscribers.
The reduction in margin outlook is attributed to uncertainties regarding tariffs, as LGI Homes has started to receive notices of price increases set to take effect in April and May. Although these increases are not deemed material at this point, they have contributed to the revised guidance. Incentives are projected to stay high at 5-6% of ASP, similar to the last quarter’s figures. Nonetheless, LGI Homes anticipates a sequential improvement of 30-50 basis points per quarter for the remainder of the year due to better operating leverage from expected volume and revenue growth.
First-quarter closings declined 8% year-over-year, with an 11% decrease expected for April closings. Based on these outcomes and updated guidance, JPMorgan has also lowered its Operating EPS estimates for LGI Homes for 2025 and 2026 to $6.37 and $7.96, respectively, from the former projections of $7.51 and $8.97.
The revised December 2025 price target of $52 is now based on a target multiple of approximately 6.5 times JPMorgan’s 2026 estimated EPS, a decrease from the previous multiple of around 7 times. This adjustment reflects the analyst’s view of a more challenging housing market over the next 12 months, LGI Homes’ below-average operating margins, return on equity (ROE), and the firm’s EPS estimates that are below consensus.
Rehaut further justifies the Underweight rating by pointing out LGI Homes’ valuation, trading at about 8.5 times and 7 times JPMorgan’s estimated EPS for 2025 and 2026, respectively. These figures are close to the average multiples of LGI Homes’ smaller-cap peers, excluding SDHC. Additionally, the company’s price-to-book ratio of 0.6 is below the peer average of approximately 0.9. InvestingPro data shows the company operates with a significant debt burden, with a debt-to-equity ratio of 0.8 and a beta of 2.0, indicating higher volatility than the market. Despite these valuations, JPMorgan continues to see the stock as not inexpensive, given its expectations for below-average operating margins and one of the lowest ROEs in the sector for 2025 and 2026. For deeper insights into LGI Homes’ financial health and valuation metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, LGI Homes reported its first-quarter earnings for 2025, which fell short of expectations. The company posted an earnings per share (EPS) of $0.17, significantly below the forecasted $0.69, and revenue of $351.4 million, which also missed the anticipated $361.36 million. Despite these setbacks, JMP Securities maintained a Market Outperform rating for LGI Homes with a price target of $140, expressing confidence in the company’s potential to overcome current market challenges. Additionally, LGI Homes announced the approval of an amendment to its 2016 Employee Stock Purchase Plan during its recent Annual Meeting. Shareholders also re-elected seven directors and ratified Ernst & Young LLP as the independent auditor for the fiscal year ending December 31, 2025. The company aims to increase its community count and improve gross margins, targeting an adjusted full-year gross margin of 21.7% to 23.2%. LGI Homes’ executives highlighted affordability as a significant challenge but expressed confidence in the long-term outlook for the housing market.
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