Intrinsic value of Forestar Group - FOR

Previous Close

$22.10

  Intrinsic Value

$5.16

stock screener

  Rating & Target

str. sell

-77%

Previous close

$22.10

 
Intrinsic value

$5.16

 
Up/down potential

-77%

 
Rating

str. sell

Our model is not good at valuating stocks of financial companies, such as FOR.

We calculate the intrinsic value of FOR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  116
  119
  122
  125
  129
  133
  138
  143
  148
  154
  160
  166
  173
  181
  188
  197
  206
  215
  225
  235
  246
  257
  269
  282
  295
  310
  324
  340
  357
  374
Variable operating expenses, $m
  34
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  71
  74
  77
  81
  85
  89
  93
  98
  102
  107
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  34
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  71
  74
  77
  81
  85
  89
  93
  98
  102
  107
Operating income, $m
  83
  85
  87
  89
  92
  95
  98
  102
  105
  109
  114
  119
  124
  129
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  211
  221
  231
  242
  254
  267
EBITDA, $m
  159
  163
  167
  172
  177
  183
  189
  196
  203
  211
  219
  228
  237
  248
  258
  270
  282
  294
  308
  322
  337
  352
  369
  386
  405
  424
  445
  466
  489
  512
Interest expense (income), $m
  0
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
Earnings before tax, $m
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  106
  111
  115
  121
  126
  132
  138
  144
  151
  159
  166
  174
  183
  192
  201
  211
  221
  232
  244
  256
Tax expense, $m
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
Net income, $m
  55
  56
  58
  60
  61
  64
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
  133
  140
  147
  154
  162
  170
  178
  187

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  25
  26
  27
  28
  29
  31
  32
  34
  36
  37
  39
Adjusted assets (=assets-cash), $m
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  25
  26
  27
  28
  29
  31
  32
  34
  36
  37
  39
Revenue / Adjusted assets
  9.667
  9.917
  9.385
  9.615
  9.923
  9.500
  9.857
  9.533
  9.867
  9.625
  9.412
  9.765
  9.611
  9.526
  9.400
  9.381
  9.810
  9.773
  9.783
  9.400
  9.462
  9.519
  9.607
  9.724
  9.516
  9.688
  9.529
  9.444
  9.649
  9.590
Average production assets, $m
  764
  782
  802
  824
  849
  877
  907
  939
  974
  1,011
  1,051
  1,094
  1,139
  1,187
  1,239
  1,293
  1,350
  1,411
  1,475
  1,543
  1,615
  1,690
  1,770
  1,853
  1,942
  2,034
  2,132
  2,235
  2,343
  2,457
Working capital, $m
  -158
  -162
  -166
  -171
  -176
  -182
  -188
  -195
  -202
  -210
  -218
  -227
  -236
  -246
  -257
  -268
  -280
  -293
  -306
  -320
  -335
  -351
  -367
  -384
  -403
  -422
  -442
  -464
  -486
  -510
Total debt, $m
  64
  64
  64
  64
  65
  65
  66
  66
  67
  67
  68
  68
  69
  70
  70
  71
  72
  73
  74
  75
  76
  77
  78
  79
  80
  82
  83
  85
  86
  88
Total liabilities, $m
  11
  11
  11
  12
  12
  13
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
Total equity, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
Total liabilities and equity, $m
  12
  12
  12
  13
  13
  14
  14
  14
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  32
  34
  36
  38
  39
Debt-to-equity ratio
  52.350
  51.370
  50.310
  49.180
  48.000
  46.780
  45.530
  44.280
  43.010
  41.760
  40.510
  39.280
  38.070
  36.890
  35.740
  34.620
  33.530
  32.470
  31.450
  30.460
  29.510
  28.600
  27.720
  26.870
  26.060
  25.280
  24.530
  23.820
  23.130
  22.480
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  55
  56
  58
  60
  61
  64
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
  133
  140
  147
  154
  162
  170
  178
  187
Depreciation, amort., depletion, $m
  77
  78
  80
  83
  85
  88
  91
  94
  98
  101
  105
  109
  114
  119
  124
  129
  135
  141
  148
  154
  161
  169
  177
  185
  194
  203
  213
  224
  234
  246
Funds from operations, $m
  131
  135
  138
  142
  147
  151
  157
  163
  169
  175
  182
  190
  198
  207
  216
  225
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  375
  393
  412
  433
Change in working capital, $m
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
Cash from operations, $m
  134
  138
  142
  147
  152
  157
  163
  169
  176
  183
  191
  199
  208
  217
  226
  237
  248
  259
  271
  284
  298
  312
  327
  343
  359
  377
  395
  415
  435
  456
Maintenance CAPEX, $m
  -75
  -76
  -78
  -80
  -82
  -85
  -88
  -91
  -94
  -97
  -101
  -105
  -109
  -114
  -119
  -124
  -129
  -135
  -141
  -148
  -154
  -161
  -169
  -177
  -185
  -194
  -203
  -213
  -224
  -234
New CAPEX, $m
  -13
  -18
  -20
  -23
  -25
  -27
  -30
  -32
  -35
  -37
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -72
  -75
  -80
  -84
  -88
  -93
  -98
  -103
  -108
  -114
Cash from investing activities, $m
  -88
  -94
  -98
  -103
  -107
  -112
  -118
  -123
  -129
  -134
  -141
  -148
  -154
  -162
  -170
  -178
  -186
  -196
  -205
  -216
  -226
  -236
  -249
  -261
  -273
  -287
  -301
  -316
  -332
  -348
Free cash flow, $m
  46
  44
  44
  44
  44
  45
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  61
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
Issuance/(repayment) of debt, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
Total cash flow (excl. dividends), $m
  45
  44
  44
  44
  45
  45
  46
  47
  48
  49
  50
  52
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
Retained Cash Flow (-), $m
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  7
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
Cash available for distribution, $m
  44
  44
  44
  44
  45
  45
  46
  47
  48
  49
  50
  52
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
Discount rate, %
  14.40
  15.12
  15.88
  16.67
  17.50
  18.38
  19.30
  20.26
  21.28
  22.34
  23.46
  24.63
  25.86
  27.15
  28.51
  29.94
  31.43
  33.01
  34.66
  36.39
  38.21
  40.12
  42.12
  44.23
  46.44
  48.76
  51.20
  53.76
  56.45
  59.27
PV of cash for distribution, $m
  39
  34
  28
  24
  20
  16
  13
  11
  8
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Forestar Group Inc. is a residential and mixed-use real estate development company. The Company operates through three segments. The Real Estate segment secures entitlements and develops infrastructure on its lands, for single-family residential and mixed-use communities. The Mineral resources segment is focused on its owned oil and gas mineral interests through promoting exploration, development and production activities. The Other segment manages its timber holdings, recreational leases and water resource initiatives. As of December 31, 2016, its core community development business had directly or through ventures interests in 50 residential and mixed-use projects consisting of 4,600 acres of real estate located in 10 states and 14 markets. As of December 31, 2016, its non-core assets included approximately 523,000 net acres of owned mineral assets, 19,000 acres of timberland and undeveloped land, four multifamily assets and approximately 20,000 acres of groundwater leases.

FINANCIAL RATIOS  of  Forestar Group (FOR)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

FOR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FOR stock intrinsic value calculation we used $114 million for the last fiscal year's total revenue generated by Forestar Group. The default revenue input number comes from 2017 income statement of Forestar Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FOR stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 14.4%, whose default value for FOR is calculated based on our internal credit rating of Forestar Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Forestar Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FOR stock the variable cost ratio is equal to 28.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FOR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 12% for Forestar Group.

Corporate tax rate of 27% is the nominal tax rate for Forestar Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FOR stock is equal to 5.8%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FOR are equal to 657.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Forestar Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FOR is equal to -136.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for Forestar Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 42 million for Forestar Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Forestar Group at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Austin's Forestar Group sells $232M of homes, land to one-time East Coast suitor   [Feb-09-18 12:20PM  American City Business Journals]
▶ Home Sweet Home: 5 Favorite Homebuilders   [06:03AM  Investopedia]
▶ Forestar CEO Phillip Weber to step down   [Dec-21-17 07:10AM  MarketWatch]
▶ D.R. Horton, Forestar Group to merge under new $560M agreement by year's end   [Jun-29-17 12:10PM  American City Business Journals]
▶ D.R. Horton ups bid for Forestar, emerges with inside track on buyout   [Jun-23-17 03:49PM  American City Business Journals]
▶ D.R. Horton ups the ante to land Forestar in key acquisition deal   [02:45PM  American City Business Journals]
▶ Starwood raises bid for Austin's Forestar   [11:20AM  American City Business Journals]
▶ Forestar Announces Amended Merger Agreement with Starwood   [Jun-21-17 07:58PM  Business Wire]
▶ Forestar reverses course, warms up to D.R. Horton's $520M takeover bid   [09:50AM  American City Business Journals]
▶ Why Forestar Shares Are Making a Run   [10:45AM  24/7 Wall St.]
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