Forestar Group Inc. (FOR) stock intrinsic value fair value estimate & owner earnings analysis

Forestar buys raw land, installs roads, utilities and drainage, and sells finished residential lots to homebuilders across roughly 60 US markets. It is 62% owned by D.R. Horton, the largest US homebuilder, which buys about three-quarters of Forestar's lots (11,751 of 14,240 lots and $1.28 billion of $1.66 billion of revenue in fiscal 2025). Under a Master Supply Agreement running to June 2037, D.R. Horton has a right of first offer on its own-sourced projects and up to half the lots on Forestar-sourced ones, at market prices. How we measure earnings. We start from operating cash flow, then remove the swings caused by buying and developing land (the real estate inventory build) and by payables and deposits, and subtract stock compensation. Because Forestar's cash flow swings between roughly -$200 million and +$360 million a year purely on how much land it buys, this strips timing noise and leaves earnings of about $190-215 million a year, or roughly $3.75-$4.25 per share since fiscal 2022. We measure only from fiscal 2019, after D.R. Horton took control in late 2017 and changed the business. We anchor on fiscal 2022-2025 (median about $4.04 per share) as the period of full scale, spanning both the 2023 slowdown and the recent margin squeeze. Fiscal 2025 came in at $3.75, down about 12% from fiscal 2024's $4.25, as lot prices did not keep pace with land and development costs and D.R. Horton lot purchases fell 11%. One judgement to note: land purchases are treated as working capital, so earnings assume the lot inventory is maintained rather than grown; that holds only while we do not credit growth. Base case (about $32 per share). We start next year at about $3.75 per share, flat versus fiscal 2025 rather than the 12% decline just seen. The reasons are in the filings: nine-month fiscal 2026 net income of $83.5 million is 3% above last year, revenue is 6% higher, and D.R. Horton contracted lots rose to 22,800 (from 20,500) with $2.0 billion of contracted sales value. We assume no growth after that for ten years: earnings per share have not risen since 2022 even though revenue grew 9%, so margin or share gains are not evidenced. Owned land and lots (65,100) plus contracted purchases (34,700) is about seven years of current volume, which supports the flat level. After the agreement with D.R. Horton ends in 2037 we credit only the third-party business that already exists (17.5% of lots sold in fiscal 2025, up from 12% the year before), at 20% of earnings for a further 15 years, then nothing. Bear case (about $22 per share). Fiscal 2025's pattern repeats for two more years: earnings fall about 17% a year, to roughly $2.60 per share (about $3.20 in year one), and stay there, with D.R. Horton purchases down further and lots repriced below rising costs. Forestar carries $803 million of debt, including $500 million of 6.5% notes due 2033, which limits room to absorb a weaker period; interest is largely capitalized into lot costs, so it hits earnings as lots are sold. Post-2037 credit is the same 20% third-party business. Bull case (about $45 per share). Forestar's own levers execute: owned lots grew 13% in fiscal 2025 to 65,100, D.R. Horton contracted lots rose 11%, and third-party lot sales rose 38% in fiscal 2025. Earnings start at about $3.90 and grow 5% a year for ten years (to about $6 per share), then third-party business worth 30% of earnings persists for 15 years. What we left out and why: margin recovery, housing-market growth, share gains beyond signed contracts, and any value beyond 2037 from D.R. Horton itself, because none of these has a named, present cause in the filings. Wasting-asset concerns do not apply; amortisation is small, but lot-price impairments ($7.2 million in fiscal 2025, $24.0 million in fiscal 2023) show that inventory can lose value in a downturn. What would make this wrong: a broad slump in single-family starts that cuts D.R. Horton's purchases, or D.R. Horton reducing its stake or changing its approach to lot supply, in which case the earnings level would fall well below our base. Note that the June 2026 quarter's full filing was not available to us; fiscal 2026 figures come from the tagged quarterly data only.