Earnings call: LGI Homes reports robust Q3 2023 results, anticipates growth in community count

LGI Homes (NASDAQ:) has reported a strong performance for the third quarter of 2023, with a 13.2% increase in home closings compared to the same period last year. The company’s revenue for the third quarter was $617.5 million, with 1,751 homes closed. LGI Homes anticipates an increase in year-over-year closings in the fourth quarter and expects to close between 6,700 and 7,000 homes for the full year.

Key takeaways from the earnings call include:

• LGI Homes achieved adjusted gross margins of 27.2%, a sequential improvement of 340 basis points.
• The top markets in terms of closings per community were Dallas Fort Worth, Charlotte, Northern California, Fort Pierce, and Houston.
• The company closed a deal to acquire over 1,100 lots in North Carolina and approved 23 new projects in the third quarter.
• The community count grew to 106 active communities at the end of the quarter.
• The company had $196.2 million of available capacity under its credit facility as of September 30th.
• The stockholders’ equity was over $1.8 billion with a book value per share of $76.50, a 10.9% increase compared to the same time last year.
• LGI Homes expects to end 2024 with over 150 communities and operate in over 180 communities by the end of 2025.

CEO Eric Lipar discussed the company’s strategy of buying finished lots, stating that these opportunities are becoming more available and offer good margins. He noted that lot costs as a percentage of average sales price have remained consistent, and the company has a high confidence level in estimating construction costs. Lipar also mentioned a slower sales pace in September and October due to higher interest rates but emphasized the company’s focus on maintaining historical margins and increasing the community count.

The company reported that the construction time for LGI Homes remains generally the same as pre-pandemic levels. While there have been nominal savings on lumber costs, this could contribute to more flexibility in mortgage rate buydowns in the future. Despite slower sales in September, partly due to higher interest rates, the company remains focused on affordability and the reasons customers buy homes. The goal for the next 12 to 24 months is to maintain historical margins while achieving a sales pace of around five to 5.5 per month.

InvestingPro Insights

While LGI Homes has reported a strong performance for Q3 2023, InvestingPro data and tips suggest a more nuanced picture. According to InvestingPro, the company’s revenue has been declining at an accelerating rate, and the net income is expected to drop this year. This aligns with the InvestingPro data, which shows a decline in revenue growth of -23.17% over the last twelve months as of Q2 2023.

InvestingPro also highlights a declining trend in earnings per share and notes that two analysts have revised their earnings downwards for the upcoming period. Despite these challenges, InvestingPro data shows a positive 1 week price total return of 7.14% as of late 2023, indicating some recent recovery in the stock price.

On a brighter note, InvestingPro tips reveal that LGI Homes has been profitable over the last twelve months and has a high return over the last decade. The company’s P/E ratio stands at 10.82, suggesting that it may be undervalued compared to other companies in the market.

These insights, along with hundreds more, are available with InvestingPro. The platform currently lists 12 additional tips for LGI Homes, offering a comprehensive view of the company’s financial health and investment potential.

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