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Summary

  • Forestar Group reported second quarter earnings per share of $0.34, on revenues of $83.01 million.
  • In my original article I noted that Forestar remained well-positioned in terms of acreage for benefiting from a rebound in builder demand for finished residential lots.
  • During second quarter, residential lot sales were up almost 50% compared to the year-ago period, with gross profit up 11% over that same period, which confirms my view.

Forestar Group (NYSE:FOR) recently reported its second quarter 2014 financial results. Its net income came in at $14.8 million, or $0.34 per diluted share, compared to second quarter 2013 net income of approximately $0.5 million, or $0.02 per diluted share. However, the earnings may not be comparable due to the unusual nature of the company's functioning and operations.

The company manages its operations through three business segments, viz., real estate, oil and gas, and other natural resources. In the real estate segment, residential lot sales remained strong in the second quarter and were up almost 50% year-over-year and the company continued to develop lots in proportion with inventories and home buyer demand. In the oil and gas segment, the company's total oil production increased by over 43% and it added 31 gross oil and gas wells. In the other natural resources segment, the company signed amended groundwater reservation agreement, generating $0.7 million in earnings and sold nearly 107,800 tons of fiber for $16.86 per ton.

In my original article I noted that the company was trading at a significant discount to NAV, which was standing at approximately $30 per share. Despite an impressive second quarter financial performance, the discount continues to exist, which I believe due to the atypical nature of Forestar Group's business. Jim DeCosmo, President and CEO of Forestar Group, said, "We are on track to deliver our Growing FORward strategic initiatives, which are focused on increasing total segment earnings, return on assets and opportunistically selling non-core assets. Our balance sheet strength, improving cash flows and significant liquidity are expected to adequately fund these initiatives." I'd recommend buying the stock around the current price for the long-term.

Source: Update: Forestar Group Earnings