“Forestar Group boasts a rich portfolio of assets and businesses, including 136,000 acres of real estate, mostly in Texas; 752,000 acres of oil and gas properties; 1.5 million acres of water rights; and 275,000 acres of timberland. Yet the company trades for just a fraction of its net asset value, as investors don’t quite know what to make of this diverse mix.
Peter Martin, an analyst at JMP Securities, believes the shares are trading at a 40% discount to net asset value, which he puts at $18 to $43 a share. Forestar’s shares (ticker: FOR) closed on Friday at $17.56, or 1.2 times book value. The midpoint of Martin’s range is $30 a share.
ANdrew Penner/Getty ImagesForestar has been a collector of royalty payments from oil and gas drillers, but now has become a driller itself.
The discount to net asset value isn’t likely to persist. With the housing market improving, Forestar is accelerating its sales of residential lots and investing the proceeds in higher-returning ventures, including its oil and gas business and real-estate development properties.
The strategy calls for tripling sales of residential lots, oil and gas production, and earnings before interest, taxes, depreciation, and amortization. From 2008 to 2011, Forestar generated average Ebitda of $34 million a year. Through 2015, management is targeting average annual Ebitda of $120 million. Last year, Ebitda reached $90 million.
As Forestar’s strategy unfolds, net asset value and book value could rise, driving the stock higher, perhaps by as much as 70%. Martin thinks the shares are worth $29, or 1.6 times his estimated 2013 book value.
Incorporated in 1955 as the Lumberman’s Land Corp., Forestar develops residential and commercial lots and sells them to builders. In addition, it owns interests in a hotel and three residential communities. Seventy percent of the company’s real-estate investment is located in Texas, in attractive markets such as Austin, Dallas, and Houston. A legacy timber business in Georgia produces fiber that Forestar sells primarily to Temple-Inland, its previous owner. Forestar was spun off from Temple Inland, now part ofInternational Paper (IP), in 2007….”
If you enjoy the content at iBankCoin, please follow us on Twitter
