LGIH just announced results for the quarter. Revenue was up 24.3% on 12.6% more closings, but an average selling price of $205,600, up 10.4%! Back a month or two ago, Bear asked the following question:
They were flat in July, up 20% in August, but expected to somehow grow revenue 24% for the quarter?
Hi Bear, You are forgetting that what you are talking about is number of closings, not revenue. Average revenue per closing was up 6% year over year, and rising. Thus a 20% increase in closings comes to 27.2% more revenue, etc (1.06 times 1.20 = 1.272), so it may not be so undo-able. And they are starting to sell more homes in the Pacific NW, where prices are $275,000 instead of $195,000. They may indeed grow average selling price by way more than 6%…
Clearly, that’s what happened. Revenue was indeed up 24.3% just like they predicted. I was a bit disappointed by EPS though. It was only up by 13%, although it was up a penny more than estimates. This seems primarily because of two factors: The first is opening a lot more communities (59, up 18% from 50 a year ago), which means a lot of expenses and paying salesmen who aren’t fully productive yet. The second is 10% more shares than a year ago, which seems like a lot, although I know that they had to raise money to buy land and build houses, but still.
All in all it seems a very promising set of results, and gross margins are staying right up there at 27.7%.
Market doesn’t like it. I was already overweight LGIH (compared to my own allocation model). But, I added 6% more shares at $29.75. I also have another, larger order in from some time ago at $25.01, but that is just bottom fishing.
“With a solid start to the fourth quarter, we maintain an optimistic outlook on the remainder of the year and believe we are well positioned to deliver strong results for the full year 2016.”
I think this was actually the most important statement in the press release. I was concerned guidance for Q4 would have to be reduced as in recent months closings haven’t grown at the rates they were used to. As long as they don’t say anything contrary in the CC in a couple hours, I think we could get a little bit of PE appreciation seeing as we’re under 10 again. I don’t see it ever getting much higher than 12 or 13, though. Hope I’m wrong, b/c I picked up some shares this morning at 30.17. The 5% drop today was a bit of a gift. EPS is the only cause I can imagine for why that happened.
I was a bit disappointed by EPS though. It was only up by 13%, although it was up a penny more than estimates.
On the good side for earnings is that next quarter the average estimate is .99 (32% YOY growth) and they have averaged beating estimates by .05 over the past 5 quarters, so hopefully next quarter comes in around 1.04 (38.7% YOY growth).
Based off estimated .99, the 2016 full year earnings growth would be 38.5%. If they finish the fourth quarter with the .05 beat, the YOY growth would be 40.6%
Now next years growth estimates are only 16%, but hopefully those will get raised soon.
I took the opportunity to buy more shares this morning, although I was too late to get under $30, I still think it will turn out to be a good purchase.