Forestar Group: A Strategic Net-Asset Play in Land Development Amid a D.R. Horton-Driven Growth Story

In the evolving landscape of land development, investors seeking undervalued opportunities often turn to companies with robust asset bases and strategic partnerships. Forestar Group (NYSE: FOR), a key player in residential lot development, stands out as a compelling case study. With a significant portion of its land holdings under contract with D.R. Horton (DHI)-its largest shareholder-Forestar's business model is uniquely positioned to capitalize on the housing market's long-term demand while trading at a discount to its net asset value (NAV).

Strategic Partnership with D.R. Horton: A Cornerstone of Growth

Forestar's relationship with D.R. Horton is not merely transactional; it is foundational to both companies' strategies. D.R. Horton owns 62% of Forestar's outstanding shares, effectively making it a de facto subsidiary. This alignment ensures a steady pipeline of land sales, as Forestar is contractually obligated to supply 14,000 to 15,000 lots for single-family home construction in 2026 across 23 U.S. states. As of June 30, 2025, 25,700 of Forestar's 67,000 owned lots were under contract, representing $2.3 billion in future revenue, while an additional 18,500 lots were subject to a right of first offer to D.R. Horton. This deep integration reduces market risk for Forestar and provides D.R. Horton with a reliable, cost-controlled supply chain-a critical advantage in a sector where land acquisition volatility often disrupts margins.

Financial Performance and Valuation: A Case for Undervaluation

Forestar's recent financial results underscore its operational strength. In Q3 2025, the company reported $390.5 million in revenue, a 11% year-over-year increase, driven by the sale of 3,605 residential lots. For the full year, revenue grew 10% to $1.7 billion, with book value per share rising 11% to $34.78. Despite these metrics, Forestar's stock trades at a price-to-earnings (P/E) ratio of 7.54, significantly below the S&P 500's average of 22. This discrepancy suggests the market is underappreciating the company's asset base.

A closer look at Forestar's balance sheet reveals further upside. As of Q4 2025, the company's stock price was $24.84, while its book value per share stood at $34.78. This $10-per-share gap implies a 28% undervaluation relative to tangible assets. JPMorgan Chase & Co. recently raised its price target to $25.00, a 0.66% premium to the November 5 closing price, reflecting cautious optimism. However, given the $2.3 billion in contracted future revenue and the potential for margin expansion through strategic land development, the intrinsic value likely exceeds current estimates.

Industry Trends and Positioning: Aligning with Long-Term Demand

The land development sector is undergoing a shift toward purpose-driven, data-informed urban planning. Recent projects, such as C1 Development's student housing community and Godrej Properties' sustainable township in South Bengaluru, highlight a growing emphasis on addressing specific housing needs. Forestar's focus on single-family residential lots aligns with this trend, particularly in markets where D.R. Horton's construction expertise can maximize the value of developed land.

Moreover, the company's geographic diversification-operating in 23 states-positions it to benefit from regional demand imbalances. For instance, urbanization in Sun Belt states like Texas and Florida, where D.R. Horton has a strong presence, is driving housing demand. By leveraging its land holdings and D.R. Horton's construction capabilities, Forestar can capitalize on these dynamics without bearing the full risk of homebuilding.

Conclusion: A Compelling Investment Thesis

Forestar Group's strategic partnership with D.R. Horton, combined with its undervalued asset base and alignment with industry trends, presents a compelling case for investors. The company's contracted revenue streams, low P/E ratio, and strong book value suggest a margin of safety, while its role in a vertically integrated housing ecosystem offers growth potential. As the U.S. housing market continues to recover and urbanization trends intensify, Forestar's disciplined approach to land development and its symbiotic relationship with D.R. Horton could unlock significant shareholder value.