New Home Buying Demand Remains High Despite Interest Rate Challenges: Analyst Opines On LGI Homes' Performance

JMP Securities analyst Aaron Hecht reiterated a Market Outperform rating on the shares of LGI Homes Inc LGIH and raised the price target from $130 to $150.

On July 6, 2023, LGIH announced its June home closings, which was the final data point necessary to aggregate 2Q23 closings.

The analyst said the results exceeded expectations at 1,854 homes, 263 higher than the estimated 1,591 homes.

The closings number implies 6.1 homes closed per community, above the analyst’s 5.2 estimate.

Over the course of 2023, it has become clear that higher rates have materially reduced the available supply of for-sale homes, which has combined with millennial demographics to keep new home buying demand higher than expected, the analyst commented.

After the 2Q23 home closings data, the analyst increased the diluted EPS estimates for 2023 and 2024 to $7.32 and $11.66, respectively, from $7.19 and $11.65 previously.

LGIH traditionally trades at a premium to the group given a higher ROE profile of approximately 650 basis points over the last 5 years, 27.7% vs 21.2%.

The analyst added that the updated target multiple of 1.9x is appropriate in this environment, given LGIH’s ROE profile.

Given the fundamentals, the analyst believes public builders will perform well for the foreseeable future.

Price Action: LGIH shares are trading higher by 3.6% at $127.92 on the last check Monday.