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Valens Research

LGIH - Embedded Expectations Analysis - 2020 05 20

LGI Homes, Inc. (LGIH:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.9x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about coronavirus, sales performance, and single-family home demand suggest the potential for near-term headwinds, market expectations remain far too bearish, and longer-term equity outperformance is warranted

Specifically, management may have concerns about suspending their nonemergency warranty work and the potential magnitude of the pandemic, and they may lack confidence in their ability to meet their average sales price expectations and sustain early May performance. In addition, they may be overstating their liquidity to navigate this period of uncertainty, the increased desire of families to relocate to single-family homes, and their confidence that suburban entry-level, single-family detached homes are the right business during this pandemic

Although management's concerns about coronavirus, sales performance, and single-family home demand suggest the potential for near-term headwinds, given the firm's substantial growth opportunities and strong market positioning, market expectations remain far too bearish, and longer-term equity outperformance for LGIH is warranted
Underlying
LGI Homes Inc.

LGI Homes is a holding company. Through its subsidiaries, the company is engaged in the design, construction, and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, and Nevada. The company's product offerings include entry-level homes, including both detached homes and townhomes, and move-up homes sold, which are sold under its LGI Homes brand, and its luxury series homes, which are sold under its Terrata Homes brand. The company's homebuilding operations are organized and managed by seven divisions: West, Northwest, Central, Midwest, Florida, Southeast and Mid-Atlantic.

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