LGI Homes: Strong Buy with $123 Price Target

LGI Homes initiates coverage at Strong Buy with a $123 price target. The company designs, builds, and sells entry-level and move-up homes in 146 communities across high-growth markets in the US. Our thesis is built on a disciplined approach to margin management and strong community growth.

LGI Homes, Inc. (NASDAQ:LGIH) has initiated coverage with a Strong Buy rating and a $123 price target, according to analysts at [1]. The company designs, builds, and sells entry-level and move-up homes in 146 communities across high-growth markets in the US. The analysts' thesis is built on a disciplined approach to margin management and strong community growth.

The analysts model FY25E EBITDA of $300mn (up +40% y/y) and FY26E EBITDA of $360.8mn (up +20% y/y), with conviction on LGIH's ability to work through the near-term margin compression associated with aggressive incentives and tariff-driven input costs. While modestly below consensus, these estimates are underpinned by +22% community count growth and a healthy backlog, supporting volume acceleration at the market pricing power return.

LGI Homes' operational scale and community expansion are key differentiators to outperformance. As of March 31, 2025, LGI operated 146 active selling communities, up +21% y/y from 120 a year ago. Management expects 160-170 active communities by year-end 2025, reflecting continued ambition to expand its national presence and drive incremental share gains ahead of peers.

The company's land pipeline and cost advantage are also significant. As of December 31, 2024, LGI's land position includes an owned inventory base of 70,899 lots, of which 53,317 or more than 75% are company-owned lots. This high percentage of self-developed owned lots provides flexibility to underwrite communities at attractive returns and opportunistically leverage incentives/pricing levers to compete.

Valuation is based on an 8.0x forward EBITDA multiple on the FY26E EBITDA forecast of $360.8mn, reflecting a disciplined recognition of both near-term margin compression and the outsized long-term growth runway. The analysts believe the street skepticism of persistent incentive-related margin compression and input cost volatility into FY25 is overly short-sighted.

Downside risks include sustained margin compression, mortgage rate volatility, and incremental competitive intensity. However, the analysts maintain conviction in LGI Homes' disciplined margin management and long-term community growth runway.

References:
[1] https://seekingalpha.com/article/4790300-lgi-homes-stock-margin-discipline-community-growth-initiate-strong-buy