LGIH - results

Since people were worried about guidance, here it is:

“2016 was another great year for LGI Homes,” said Eric Lipar, the Company’s Chief Executive Officer and Chairman of the Board. “Our fourth quarter provided a solid finish with a record-breaking 4,163 homes closed for the year, achieving significant growth in revenues and active community count, and increasing basic earnings per share 36.2% over the prior year.”

“As we turn our attention to 2017, we remain focused on delivering strong results. Although we have only closed 396 homes through February, our sales to date in 2017 have been strong and we believe these will fuel our future closings over the next few months. As a result, we maintain our positive outlook on the year.”

“We are poised to see continued growth in 2017 and believe we are well positioned to increase our revenues, community count and earnings per share, allowing LGI Homes to achieve our long term goals and objectives of market leading returns for our shareholders. For the year, we expect to close more than 4,700 homes and believe basic EPS will be in the range of $4.00 to $4.50 per share,” Lipar concluded.

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The The Woodlands, Texas-based company said it had profit of $1.01 per share.

The results surpassed Wall Street expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 94 cents per share.

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Fourth Quarter 2016 Highlights and Comparisons to Fourth Quarter 2015

Net Income of $23.2 million, or $1.09 Basic EPS and $1.01 Diluted EPS

Net Income Before Income Taxes increased 45.1% to $34.9 million

Home Sales Revenues increased 34.0% to $236.8 million

Home Closings increased 20.4% to 1,139 homes

Average Home Sales Price increased 11.3% to $207,928

Gross Margin as a Percentage of Homes Sales Revenues was 27.2% as compared to 26.5%

Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales Revenues was 28.5% as compared to 27.6%

Active Selling Communities at quarter-end increased to 63 from 52

Total Owned and Controlled Lots increased to 29,460 lots

Full Year 2016 Highlights and Comparisons to Full Year 2015

Net Income of $75.0 million, or $3.61 Basic EPS and $3.41 Diluted EPS

Net Income Before Income Taxes increased 41.6% to $113.7 million

Home Sales Revenues increased 33.0% to $838.3 million

Home Closings increased 22.3% to 4,163 homes

Average Home Sales Price increased 8.8% to $201,374

Gross Margin as a Percentage of Home Sales Revenues was 26.4% as compared to 26.5%

Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales Revenues remained at 27.8%

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And it’s now at a PE of almost exactly 8.5 !!!

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For the year, we expect to close more than 4,700 homes and believe basic EPS will be in the range of $4.00 to $4.50 per share

And let’s say they don’t beat and raise the way they always have but just come in a bit below the top of their range at $4.40. At yesterday’s close of $29.01, their PE will be 6.6 !!!

Anyone still feeling an urgent desire to sell out? Glad you stayed in? (I am).

Saul

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Yeah, glad I only trimmed my holdings rather than close them out. LGIH was about 18% of my portfolio before I trimmed. I was nervous about holding so much in one company and they had moving sideways for quite a while. I trimmed it back to about 12%, still a healthy percentage.

Up $2.33 in pre-market (8%). It may not last but it’s nice for now.

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saul,

most of your stocks I get - very strong sales growth usually with recurring revenue and deferred revenue galore so they get paid up-front and usually a beautiful balance sheet as a result

can I ask what your take is on the LGIH’s balance sheet? Cause it is different than your usual stuff

so year over year
Note payable up 94m to 500m
it is all going into real estate inventory obviously

what does all this mean?
I only ask because as you note the PE is really low
so I’m just trying to develop some comfort about the “E”

I’m just used to - say - a Priceline where the E usually ends up as more cash, minus whatever buyback they did, on the BS. With LGIH, the E seems to be translating into more and more real estate inventory. Is that a good thing? Or does it not matter short-term?

any help appreciated - pardon my ignorance

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Note payable up 94m to 500m
it is all going into real estate inventory obviously

what does all this mean?

My take on is that they were anticipating the prices of land rising sharply and so they grabbed land as soon as possible. I presume this is also the reason why their P/E is so low - a lot of investors look at negative cash flow and exit their positions without digging deeper.

The question you have to ask yourself is whether you believe the housing market is going to go up over the course of the year or not. If yes, they are going to make a lot of money. If not, then I think the downside is actually already priced in (barring a complete housing market collapse, of course).

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With LGIH, the E seems to be translating into more and more real estate inventory.

That’s the reason I argued homebuilders should be valued based on their book value and not on PE. LGIH enjoyed a higher PE because it was growing fast and expanding their BV but their growth rate will slow down. I think market has sort of re-rated this company.

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At yesterday’s close of $29.01, their PE will be 6.6 !!!

The guidance is up-beat. They have announced an increase in their community count and re-iterated the 4700 and increased margin. This is noteworthy given the weakness in sales, and absorption at the community level they experienced in the first 2 months.

any help appreciated - pardon my ignorance

I don’t know, One Eye, as I’ve never been in a builder before, but putting their earnings into expansion by buying lots near metropolitan areas (which hopefully will actually increase in value), doesn’t seem like a bad way of handling it. But I’m no expert in this area.

Saul

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Anyone still feeling an urgent desire to sell out? Glad you stayed in? (I am).<<

Thank you Saul! Not only for LGIH, which has taken some patience, but for SHOP, PAYC, SBNY. Since discovering this board, via MF and SA, I am gradually transitioning from a casual “pie-chart” investor into a much more active one. I still have most of my investments in ETF’s, but my stocks are getting close to 30% of my investment portfolio.
Since I’m recently retired I now have more time and since this is my only source of income (not drawing SS yet)I have much more interest in performance.

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Is it worth buying at this increased price today?

I have no position in it.

I know this is a personal opinion but wanted Saul and others opinions.

Is it worth buying at this increased price today?

Not wanting to be accused of price anchoring, but I would point out that my largest purchase of my current LGIH holding was made on September 22, 2016–less than 6 months ago. That lot is still underwater by 9%. Just to say that we are not near all time high for LGIH. p/e of 9.3 as I write is not high for LGIH… although you can’t compare that to other industries. Take a starter position in a day or two.

KC

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Glad I stayed in too. I now have an 8.5% position in LGIH.

Frank

Is it worth buying at this increased price today?

That’s a decision only you can make based on your situation.

But very simply, if you look at the current PE of 9.3 even with today’s 16% increase in price, and next year’s estimates of $4.00-$4.50. Taking the midpoint of $4.25 and applying the same 9.3 PE gives you a price in a year of $39.52, or 17% higher than today’s price. If they hit at the high end of estimates (which they have typically beaten), the price in a year could be $41-$42, or a 21%-24% increase from today’s price.

Obviously there are a lot of factors that will impact those assumptions (negatively or positively) like interest rates, LGIH’s ability to execute, housing market in general, etc. Whoever predicts those impacts better will make money.

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I discovered this stock because of this board and I would like to thank Saul and all participants for your input. It is a new industry for me but an easy one to understand. Unfortunately for me, I sold half my position yesterday as was getting nervous. My bad.

In fact, I do not understand why the ITB ETB (homebuilders) is near its high while LGIH is not.

Once again, thanks everyone. I am learning a lot on this board.

Best,
Dominic

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Very nice earnings report today. I must admit I was a bit surprised at how quickly selling prices are rising. I wasn’t expecting that. I have owned this company just about 2 years now and have become fairly comfortable with managements estimates. They seem to do a good job at meeting them. Assuming you trust guidance this is how I am analyzing the numbers given today’s new information.

Worst case: EPS = $4.00 Assuming a low P/E of 9ish we get a stock price of $36. Still higher then today’s price. Not the best YoY performance though not bad for a worst case scenario assuming low end of estimates hold.

Best case: EPS = $4.50 Assuming a P/E more in line with other builders of 13 gives us a stock price of $58.50. That leaves at even today’s current price of 33.5 a potential 75% upside.

Granted this assumes managements guidance holds. If they miss then who knows how low it can go. If they beat I think we all will be relatively happy with our 1 year returns. I personally feel the biggest risk is lowering in average selling prices due to rising interest rates. You though have to keep in mind interest rates hit historic lows and can rise quite a bit before becoming anywhere near expensive. My personal feeling is even at today’s price given the new earnings news it is still a relatively low risk investment in the short term.

Long LGIH Shares
Short March 2017 Put Options

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Well I am happy I hung in there. I had considered selling some of my shares at a nice profit, but after reviewing everything I had at my disposal, including all of the input from the posters on this board (thank you very much!), I decided that the odds were very good that the earnings report would be a good one. And so it was. This was actually a tough decision for me, because something in my gut was cautioning me. Usually my gut is correct, but this time maybe it was just something I ate. Lol.

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