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Results: Forestar Group Inc. Confounded Analyst Expectations With A Surprise Profit

Simply Wall St

It's been a good week for Forestar Group Inc. (NYSE:FOR) shareholders, because the company has just released its latest third-quarter results, and the shares gained 4.4% to US$17.16. In addition to smashing expectations with revenues of US$178m, Forestar Group delivered a surprise statutory profit of US$0.21 per share, a notable improvement compared to analyst expectations of a loss. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

See our latest analysis for Forestar Group

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Taking into account the latest results, the current consensus from Forestar Group's four analysts is for revenues of US$838.6m in 2021, which would reflect a modest 2.2% increase on its sales over the past 12 months. Statutory per-share earnings are expected to be US$1.04, roughly flat on the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$747.5m and earnings per share (EPS) of US$0.91 in 2021. So we can see there's been a pretty clear increase in sentiment following the latest results, with both revenues and earnings per share receiving a decent lift in the latest estimates.

It will come as no surprise to learn that the analysts have increased their price target for Forestar Group 19% to US$19.20on the back of these upgrades. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Forestar Group at US$21.00 per share, while the most bearish prices it at US$12.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Forestar Group's revenue growth is expected to slow, with forecast 2.2% increase next year well below the historical 29%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 8.9% per year. Factoring in the forecast slowdown in growth, it seems obvious that Forestar Group is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Forestar Group following these results. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Forestar Group going out to 2021, and you can see them free on our platform here.

Even so, be aware that Forestar Group is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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