Forestar stock trades near recent highs as land sales lift earnings

Forestar Group Inc. (ISIN US3451602016) is a residential lot development company majority owned by homebuilder D.R. Horton, and Forestar stock has been supported by improving fundamentals in its latest reported quarter. In the fiscal quarter ended 31 March 2024, Forestar reported higher revenue from residential land sales and stronger earnings compared with the prior year period, according to figures available from its investor relations materials as of 30 April 2024. For investors, the combination of rising lot sales and a growing owned lot position has been a key driver for Forestar stock in recent quarters.

Revenue up over 50 percent

In its fiscal second quarter of 2024, which ended on 31 March 2024, Forestar reported that revenues from residential lot sales increased significantly compared with the same quarter of the prior year. According to data summarized for investors by Forestar, total revenue in that quarter was approximately $339 million, up from around $216 million in the fiscal second quarter of 2023, representing an increase of roughly 57 percent year on year. This jump in revenue reflects both higher volumes of lots sold and a favorable mix of communities in which Forestar operates, focused on affordable and move-up housing segments.

The company also showed improved profitability over this period. Forestar’s net income in the fiscal second quarter of 2024 was reported at close to $52 million, compared with about $38 million in the same quarter of the prior year, indicating earnings growth of more than 35 percent year on year. That result translates into diluted earnings per share in the latest quarter that were higher than the prior-year quarter, helping to underpin Forestar stock in the months following the earnings release. The improved bottom line was supported by disciplined cost control and by leveraging its relationship with D.R. Horton to efficiently develop residential lots for a large homebuilder customer base.

Lot position grows above 80,000

A central metric for a land development company like Forestar is the number of residential lots it owns or controls. As of 31 March 2024, Forestar reported a total lot position of approximately 83,000 lots that it either owned or controlled under purchase contracts. This compares with a lot position of about 77,000 lots at 31 March 2023, representing an increase of roughly 6,000 lots or around 8 percent year on year. The expansion of the lot pipeline signals that Forestar continues to secure development opportunities in growth markets for single-family housing, reinforcing its ability to sustain higher revenues in future periods.

Forestar’s strategy has been to focus on entitled and partially developed residential lots that can be sold to homebuilders, including its majority owner D.R. Horton, at competitive prices. The company emphasized that a large proportion of its lots are in markets with favorable demographic trends and employment growth. As of 31 March 2024, the majority of Forestar’s lots were concentrated in states such as Texas, Florida, and other Sun Belt markets where demand for single-family homes has remained solid. This geographic focus allows the company to align its lot pipeline with areas where homebuilders continue to seek new communities.

Forestar lot development business

Forestar’s business model centers on acquiring land, obtaining necessary entitlements such as zoning and permits, and developing finished residential lots that can be sold to homebuilders. The company primarily targets single-family residential communities, which aligns closely with the needs of large builders such as D.R. Horton. Because Forestar is majority owned by D.R. Horton, a significant portion of its lot sales are made to its parent, providing a stable channel for monetizing its land inventory.

In the fiscal second quarter of 2024, Forestar reported selling more than 6,000 residential lots, a higher volume than the comparable quarter of the prior year, when it sold closer to 4,600 lots. This increase in lot sales volume, combined with a shift in the mix of communities, contributed to the revenue growth described earlier. It also illustrates how Forestar’s land development activities translate into financial performance, with each incremental lot sale adding to top-line revenue and contributing to earnings after accounting for development and overhead costs.

Financial position and leverage metrics

Forestar’s capital structure is another important factor for investors considering Forestar stock. As of 31 March 2024, Forestar reported total debt of approximately $1.3 billion, compared with roughly $1.2 billion one year earlier. The company’s debt consists mainly of term loans and notes outstanding, which finance its acquisition and development of land. Despite the slight increase in absolute debt, Forestar’s leverage metrics have remained within the ranges the company considers appropriate for a land developer with a growing lot pipeline.

At the same date, Forestar held cash and cash equivalents of around $280 million, similar to levels reported in the prior year. The combination of available liquidity and access to credit facilities allows Forestar to continue acquiring land and investing in infrastructure for new communities. For investors, the balance between debt-funded growth and maintaining sufficient liquidity is central to evaluating Forestar’s risk profile, especially in a housing market that can be sensitive to interest rates and economic conditions.

Forestar stock and market valuation

Forestar stock is listed on the New York Stock Exchange, where it trades under the symbol FOR. As of 30 April 2024, Forestar’s share price was around $27 per share, based on available market data for that date. At that price level, the company’s equity was valued at approximately $1.35 billion in market capitalization as of late April 2024, taking into account its outstanding share count. This market valuation reflects investors’ assessment of Forestar’s ability to convert its land pipeline into sustained revenues and earnings over time.

The share price around $27 as of 30 April 2024 was relatively close to the stock’s 52-week high, which stood near $29 per share, according to market summaries for Forestar. Forestar stock had also moved higher compared with its 52-week low around $17 per share during the same period, indicating that investors have rewarded the company for its improved financial results and expanding lot position. For investors following land development and homebuilding-related stocks, Forestar’s trading levels offer a way to compare valuation multiples, such as price-to-earnings and price-to-book, against broader housing and construction sector peers.

Forestar communities and product focus

The residential lots sold by Forestar are typically located within master-planned communities designed for single-family homes. Forestar focuses on communities that offer a range of lot sizes and price points, often aimed at first-time and move-up homebuyers. This product mix aligns with the demand profile of D.R. Horton and other builders that prioritize entry-level and mid-range housing segments rather than luxury homes.

Forestar’s communities frequently include basic infrastructure such as streets, utilities, and common areas, which are completed before lots are sold to homebuilders. In its investor materials, Forestar has emphasized that many of its projects are in markets with strong employment and population growth, which supports steady demand for new homes. By aligning its land acquisition strategy with those trends, Forestar aims to develop lots in locations where builders can achieve faster absorption rates once homes are constructed, helping to reduce the time between lot delivery and home sale.

Forestar stock price context

At around $27 per share as of 30 April 2024, Forestar stock traded at a level that reflects investor expectations for continued growth in lot sales and earnings. The proximity to the 52-week high near $29 suggests that the market has increasingly priced in the company’s stronger recent performance, although the valuation still depends on future housing demand and interest rate developments. For investors, monitoring Forestar’s quarterly updates on lot position, revenue, and earnings provides a way to gauge whether the current share price continues to be supported by fundamentals.