Zacks Industry Outlook Howard Hughes, Green Brick Partners and LGI Homes

For Immediate ReleaseChicago, IL – December 30, 2024 – Today, Zacks Equity Research Howard Hughes Holdings Inc. HHH, Green Brick Partners, Inc. GRBK and LGI Homes, Inc. LGIH.3 Real Estate Development Stocks to Consider Despite Industry WoesIndustry: Real Estate – DevelopmentLink: https://www.zacks.com/commentary/2388860/3-real-estate-development-stocks-to-consider-despite-industry-woesThe Zacks Real Estate – Development industry constituents are likely to face challenges due to the geopolitical unrest, macroeconomic uncertainty and supply-chain disruption. These factors are projected to inflate material expenses and keep prices of real estate high. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the near future.However, healthy demand for a number of real estate property types and a slowdown in the pace of new deliveries are likely to provide the industry some support, placing players like Howard Hughes Holdings Inc., Green Brick Partners, Inc. and LGI Homes, Inc. well for growth.About the IndustryThe Zacks Real Estate – Development industry comprises companies that are mainly engaged in owning, developing and managing a variety of real estate properties, including commercial, residential and mixed-use parcels. While some developers undertake construction on their land holdings to eventually sell the properties to homebuilders, retaining the same for conducting operations is also a common practice. Some industry participants actively undertake strategic activities, such as infrastructure improvement, along with land planning and development to boost economic development, attract quality job creators and diversify the regions in which the firms operate. These firms provide real estate leasing, stewardship, underwriting, planning and entitlement services. Real estate development companies are chiefly classified as financial ones, not construction firms.What's Shaping the Future of the Real Estate Development Industry?Geopolitical Unrest to Affect the Industry: The industry’s performance is likely to bear the brunt of geopolitical unrest. The consideration of new tariffs on imports from mainland China or other countries could have a substantial effect on trade policy. Moreover, economists expect tariffs and policies by the newly elected president to be inflationary. Although the Federal Reserve has reduced interest rates in recent times, it sees fewer cuts next year due to an expected high inflation. Amid such an environment, clients are likely to adopt a cautious approach. As a result, investors’ desire for greater price discovery will cause a delay in the closing timeline for transactions.Macroeconomic Uncertainty & Supply-Chain Woes Linger: Although investor sentiment has improved to a certain extent, as they try to make the best out of the present market conditions, a cautious stance among many continues. Over the past few years, the wars have fueled regional instability, significantly impacting energy and food security. This situation has escalated supply-chain disruption and led to increased inflation rates and other macroeconomic challenges worldwide. Several capital sources are tightening their underwriting practices, reducing credit availability. As a result, the volume of commercial real estate transactions remains on the lower side. Per the CBRE report, U.S. commercial real estate investment volume decreased 2% year over year in the third quarter of 2024 to $90 billion. Moreover, macroeconomic uncertainty has repeatedly disrupted the supply chain at various stages in recent years. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the forthcoming period.Demand Revival for Certain Asset Classes and Constrained Supply Help Industry Fundamentals: Demand for certain real estate categories such as retail, industrial and logistics, and office are witnessing healthy growth. The post-pandemic resurgence in consumers' preference for in-person shopping is propelling retail real estate demand in high-traffic corridors as retailers eye expansion to satisfy this demand. Meanwhile, the e-commerce boom and supply-chain strategy transformations provided an impetus to the industrial and logistics real estate space. Moreover, the office REITs companies are seeing an increasing number of tenants returning to offices or announcing plans to come back. This is likely to support office real estate market fundamentals. However, the elevated interest rate environment in the past quarters has not only pushed up the cost of raw materials but also slowed down the pace of new construction deliveries. Particularly, the residential market is grappling with a substantial shortage of new homes, stemming from more than a decade of under-building compared with population growth. The retail real estate market is also going through supply shortages, which is helping the industry fundamentals. Hence, the rebound in demand for certain real estate categories and supply shortage are likely to play a role in maintaining favorable industry fundamentals.Zacks Industry Rank Indicates Bleak ProspectsThe Zacks Real Estate Development industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #147, which places it in the bottom 41% of 249 Zacks industries.The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. For 2024, the industry’s earnings estimates have decreased by 4.4% since January 2024.However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.Industry Underperforms the Sector and the S&P 500The Zacks Real Estate – Development industry has underperformed the S&P 500 composite and the broader Finance sector over the past year.The industry has declined 14.1% during this period against the S&P 500 composite’s growth of 27.3%. The broader Finance sector has increased 18.3%.Industry's Current ValuationOn the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing real estate development companies, we see that the industry is currently trading at 6.24X compared with the S&P 500’s 22.66X. The industry is also trading below the Finance sector’s forward 12-month P/E of 17.01X. This is shown in the chart below.Over the past five years, the industry has traded as high as 29.99X and as low as 3.77X, with a median of 6.98X.3 Real Estate Development Stocks to ConsiderHoward Hughes Holdings, Inc.: This Woodlands, TX-based company is engaged in the ownership, management and development of commercial, residential and mixed-use real estate throughout the United States. The company operates through three business segments, namely Operating Assets, Master Planned Communities and Strategic Developments.Its assets include a portfolio of master-planned community assets, buildings and equipment, land and developments. With its expertise in the real estate sector, the company is well-poised to bank on the favorable demand in the residential and commercial real estate markets.HHH currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 EPS of $3.28 suggests a significant increase year over year. The stock has gained 18.8% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Green Brick Partners, Inc.: This is a diversified homebuilding and land development company operating in Texas, Georgia and Florida. It is engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales for its residential neighborhoods and master-planned communities.GRBK enjoys several strategic advantages, such as a significant footprint in the U.S. markets with considerable job growth and the best demographics. Its advantages extend to superior land and lot reserves and a diverse range of product offerings, positioning it favorably for expansion. Particularly, with superior infill and infill-adjacent locations in high-growth markets, GRBK is likely to gain continued benefits amid the strong demand for new homes in its markets.GRBK currently has a Zacks Rank #3. The Zacks Consensus Estimate for its 2024 EPS of $8.35 suggests a 34.4% increase year over year. The stock has gained 0.8% in the past six months.LGI Homes, Inc.: This Woodlands, TX-based company is a pioneer in the homebuilding industry, engaged in the design, construction and sale of homes across 36 markets in 21 states through an innovative and systematic approach. Notably, the company has closed more than 75,000 homes since it was founded in 2003.LGIH's continued efforts to reduce the cost of homeownership through a combination of other sales incentives and the decision to build smaller, lower-priced homes are likely to drive its sales volume in the upcoming period, positioning it well for growth.LGI Homes currently has a Zacks Rank #3. The Zacks Consensus Estimate for its 2024 EPS of $8.71 suggests a 3.4% increase year over year. The company’s shares have gained 1.7% in the past six months.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report LGI Homes, Inc. (LGIH): Free Stock Analysis Report Green Brick Partners, Inc. (GRBK): Free Stock Analysis Report Howard Hughes Holdings Inc. (HHH): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks