Forestar Group Inc (FOR) has been rated "Buy/High Risk" by Citi, despite a -7% drop in shares following a first-quarter miss due to a double-digit y/y decline in delivery volumes. The company attributes the softer volumes to a timing issue, with some deliveries pulled forward into Q4 2024. Management has reiterated its FY 2025 volume and revenue guidance of 16.0-16.5k lots, maintaining confidence in achieving these targets. However, Citi has adjusted its FY 2025-2027 earnings estimates down by $0.25 per year, reflecting a challenging margin environment amid higher-for-longer interest rates.
Citi has lowered its target price for Forestar to $32, down from $39, applying a 0.9x NTM tangible book value (TBV) multiple, reduced from 1.1x due to the margin pressures. The investment thesis highlights Forestar's potential as a vehicle for exposure to a post-Covid recovery in housing, with its focus on lower-risk, shorter-duration projects and a built-in demand pipeline from its majority owner, DHI. "We view FOR as uniquely positioned to mitigate some of that cyclical risk," Citi notes, emphasizing the strategic advantage of its relationship with DHI.
Forestar's current stock price is $24.04, reflecting a -0.95% change from the previous close.