LGI Homes (LGIH) is one of the nation’s fastest growing homebuilders engaged in the design and construction of quality entry-level homes primarily for the first time buyer, suggests Tom Bishop, small cap expert and editor of BI Research.
It has 110 active selling communities in 16 states where it builds and sells its homes. The average home goes for $248,000, but houses can range up to ~3,000 square feet and as many as 5 bedrooms with prices over $400,000.
LGI has 45,000 lots owned and controlled for future development and is benefiting from a lack of entry level homes on the market and the desire of pandemic weary people to move out of densely populated living situations and into homes that offer more space and privacy.
Other positives include the Fed’s pandemic driven low interest rates with mortgage rates below 3% and the Fed’s intention to keep them low into 2023, as well as the impact on net worth resulting from a record high stock market. Given low mortgage rates are one of the biggest drivers here, that’s verygood news for LGI.
LGI just announced 3rd quarter results — it was a great report. Adjusted EPS of $2.45 beat the consensus by a noteworthy $0.30 and bettered last year’s $1.93 by 27%. Revenues of $534 million also beat the consensus of $515 million as well as last year’s $486 million. Oh, and backlog increased 119% over last year’s period to 3,580 homes.
The company raised its 2020 guidance range on expected full-year home closings from a range of 8,000 - 8,800 earlier to a range of 8,400 - 9,000, or by 400 at the low end and 300 at the midpoint. The gross margin expectation remains between 26 and 27% (industry leading) for 2020 on an adjusted basis.
The company does not give revenue and EPS guidance as such, but the consensus for those is certainly destined to be increased, at least for the Q3 beat.
Management also noted in the conference call that it has been raising prices since August for both materials and the strength of the market. The company also approved a $300 million stock buyback program. The shares are still trading around 11 times the likely 2021 consensus and remain a "Buy".
