LGIH - Embedded Expectations Analysis - 2021 06 08
LGI Homes, Inc. (LGIH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 12.2x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about lot supply, inflation headwinds, and order growth suggest the potential for near-term headwinds, given the firm's progress expanding from a regional to national homebuilder, market expectations are still too pessimistic and longer-term outperformance is likelySpecifically, management may lack confidence in their ability to capitalize on increased interest in homeownership, increase their community count, and further improve net order growth. Moreover, they may have concerns about the sustainability of their owned and controlled lot supply as well as the availability of lots for development. Furthermore, they may lack confidence in their ability to sustain high absorption rates, EPS growth, and adjusted gross margin improvements, and they may also be concerned about cost inflation headwinds. Additionally, management may lack confidence in their ability to expand their land portfolio, recruit more development personnel, and prioritize expansion in their existing markets. Finally, they may lack confidence in their ability to further reduce their cost of debt and continue share repurchase activity.
Although management's concerns about lot supply, inflation headwinds, and order growth suggest the potential for near-term headwinds, given the firm's progress expanding from a regional to national homebuilder, markets are overly bearish, and upside is warranted for LGIH
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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