Forestar Group (FOR), a leading residential lot development company, is well-positioned to benefit from the persistent residential housing shortage. The company’s robust financial standing, low leverage, and substantial liquidity form a stable foundation for projected growth and shareholder returns. Although a potential concentration risk, its close relationship with D.R. Horton (DHI) is mitigated by strategic efforts to diversify and enter new markets. In recent news, Forestar has increased investments in land acquisition, signaling a trajectory toward strong volume growth in the future.
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Despite a miss in earnings and revenue in the first quarter of 2025, the company remains confident in its financial and operational strategies and its ability to demonstrate resilience amid varying market conditions. The stock trades at a relative discount, making it an intriguing option for investors looking to participate in the recovery of the real estate market.
Increased Investment in Land Acquisition
Forestar Group is a residential lot development company operating in 62 markets across 24 states. It is a majority-owned subsidiary of D.R. Horton, the largest volume homebuilder in the U.S. since 2002. Through 2024, Forestar delivered over 14,200 residential lots, primarily developing entitled real estate into finished residential lots for sale to homebuilders.
Despite improvements in new and existing home inventories, the supply of affordable homes remains relatively low. However, builders’ incentives, such as mortgage rate buydowns, have stimulated some demand. Notably, the cost of land development has stabilized, and there has been an improvement in the availability of contractors and necessary materials. Nevertheless, the company faces headwinds due to government delays in the form of extended cycle times.
The company has recently heightened its land acquisition and development investments, which is expected to drive future volume growth. During Q1, it invested around $685 million in land and land development, a 50% increase from last year’s Q1. Depending on market conditions, the company projects investing approximately $2 billion in land acquisition and development in Fiscal 2025.
FOR Forecasts Revenue Growth
Forestar Group’s FY2025 first quarter revenue missed expectations, coming in at $250.4 million, falling short of analysts’ projections by $78.39 million. The number of lots sold during the first quarter decreased by 26% to 2,333 compared to the same quarter of Fiscal 2024. Notably, net income decreased by 57% compared to the same period in the previous fiscal year, at $16.5 million vs. $38.2 million in the last year. The GAAP EPS of $0.32 also missed expectations by $0.34.
The company ended the quarter with total liquidity of $644.5 million, combining unrestricted cash and available borrowing capacity on its credit facility.
Management has issued forward guidance, expecting the first quarter to be the lowest delivery quarter, with an increase in lot deliveries over the remaining quarters of the fiscal year. Forecasted lot deliveries for Fiscal 2025 are between 16,000 and 16,500, which would generate revenue of $1.6 billion to $1.65 billion. In line with this, Forestar plans to invest around $2 billion in land acquisition and development in Fiscal 2025.
The Stock Is Potentially Attractively Priced
The stock has been downward, shedding over 24% in the past year. It trades at the bottom of its 52-week price range of $24.81 – $40.92. It shows mixed momentum signals, bullishly trading above shorter duration moving averages but falling below those moving averages 50 days and beyond. The stock appears to be trading at a relative discount, with a P/S ratio of 0.84x compared to the Real Estate sector average of 4.56x.
Analysts following the company have been cautiously constructive on FOR stock. For example, Citi’s Anthony Pettinari, a five-star analyst according to Tipranks’ ratings, recently reiterated a Buy rating while lowering the price target on the shares to $39 (from $43), noting expectations that 2025 will be a modest rebound year.
Forestar Group is rated a Moderate Buy overall, based on the recent recommendations of three analysts. The average price target for FOR stock is $38.67, representing a potential upside of 58.94% from current levels.
Final Thoughts on Forestar
Forestar Group is strategically positioned to seize the opportunity presented by the persistent housing shortage. The company’s financial stability, low leverage, and significant liquidity support expected growth opportunities. Despite a challenging first quarter in 2025, the company’s management remains optimistic about its strategies, which include increased land acquisition investments and diversification efforts. The stock trades at an attractive valuation, providing an opportunity for investors, especially for those banking on a real estate market recovery.
