Here’s the previous update after the August results:
JAN 172 result in
FEB 224 result in
MAR 365 result in
APR 365 result in
MAY 523 result in (452 was forecast so +71)
JUN 623 result in (457 was forecast so +166)
JUL 591 result in (462 was forecast so +129)
AUG 596 result in (467 was forecast so +123)
SEP 473 my forecast
OCT 478 my forecast
NOV 483 my forecast
DEC 488 my forecast
TOTAL 5323 (original forecast was 4886 so +437)
In September, LGIH closed 596 homes instead of the 467 in my model.
JAN 172 result in
FEB 224 result in
MAR 365 result in
APR 365 result in
MAY 523 result in (452 was forecast so +71)
JUN 623 result in (457 was forecast so +166)
JUL 591 result in (462 was forecast so +129)
AUG 596 result in (467 was forecast so +123)
SEP 542 result in (473 was forecast so +69)
OCT 478 my forecast
NOV 483 my forecast
DEC 488 my forecast
TOTAL 5392 (original forecast was 4886 so +506)
Here’s what I wrote last month:
As I expected, LGIH management was forced to raise its guidance from 4700 to more than 5000 for FY2017. The divergence between the actual results and my model is increasing with each month. That’s not too surprising given that my model was somewhat conservative. It seems very likely now that, despite the effects of Harvey on the Houston market and of Irma on the Florida markets, LGIH will exceed their new guidance of 5000 homes. In fact, I would predict that the year end total home closings should easily exceed 5500 even if there is some impact on sales due to Irma. Interest rates, a key driver for home purchase affordability, remains very favorable; in fact, 10-year Treasuries are approaching 2%!! The other prediction is that management will be forced to raise their guidance again at the next earnings call. The one thing that could limit 2017 home closings is the availability of inventory; this was brought up on the earnings call.
Now we have 3 months to go. We also have an earnings result coming in a few weeks. In the first 9 months of 2017, LGIH closed on 4701 homes. Will they raise guidance on the call? My guess is that they may increase guidance but probably not by much, maybe by 300-400 additional homes for the 2017 guidance. They have shown to be conservative in the past, and they don’t want to fall short of guidance. Interest rates, employment numbers, and other economic factors all remain positive for continued strong home sales. Other home builders are reporting good numbers and the home builder stocks have been doing well in the past couple of weeks. LGIH stock may well continue to perform well for the rest of 2017 on the positive sentiment in the sector. The market thinks there will be a 0.25% interest rate hike to the Fed Funds rate in December. If there is a hike, home builders might take a temporary hit, but we are still 2 months out and a hike is priced into the market. Economic data will be coming in over the next 2 months. Will the data start to reduce the market sentiment of a hike? The first of this data is employment data which will be released tomorrow (Friday, Oct 6th at 8:30am EDT).
Chris