Earnings and Profit Margins Will Strengthen Despite Headwinds and New Buyback

Key Takeaways

• Weaker homebuyer demand, lower prices, and higher input costs are pressuring margins, sales, and profit outlooks amid challenging industry conditions.
  
• Heavy reliance on entry-level buyers and concentrated markets increases vulnerability to affordability shifts and local economic downturns.
  
• Strong operational efficiency, a growing community footprint, and a flexible land strategy position Century Communities for long-term growth despite ongoing affordability challenges in the housing market.

Catalysts

Engages in the design, development, construction, marketing, and sale of single-family attached and detached homes.

• Ongoing elevated mortgage rates and affordability constraints are dampening homebuyer demand, forcing Century Communities to increase sales incentives and accept lower average selling prices, which is already putting downward pressure on gross margins and is expected to weigh further on both revenues and earnings in the coming quarters.
  
• The company's reliance on price-sensitive entry-level buyers leaves it especially vulnerable to any further deterioration in affordability, shrinking the potential customer base and increasing the risk of slower sales volume and lower top-line growth.
  
• Unit sales are trending below typical seasonal expectations and the company recently revised its full-year home delivery guidance downward, signaling that headwinds in demand could persist and result in weaker revenue growth than the market expects.
  
• Supply cost inflation remains a concern, with the potential for higher lumber pricing due to possible Canadian tariffs and anticipated land inflation; these input costs may not be fully offset by direct cost reductions, likely compressing net margins over time.
  
• Geographic concentration in certain cyclical markets (e.g., Texas, Mountain region) increases exposure to local economic slowdowns, creating risk of volatile and potentially lower revenues if regional conditions worsen.

Century Communities Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Century Communities's revenue will decrease by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.0% today to 2.8% in 3 years time.
• Analysts expect earnings to reach $114.5 million (and earnings per share of $4.01) by about September 2028, down from $260.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, up from 7.8x today. This future PE is greater than the current PE for the US Consumer Durables industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 5.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.12%, as per the Simply Wall St company report.

Century Communities Future Earnings Per Share Growth

Risks

• Persistent U.S. housing undersupply remains a powerful secular tailwind: Despite current affordability and demand headwinds from higher mortgage rates, management continues to highlight underlying demand for affordable new homes, supported by favorable demographic trends and solid household formation fundamentals. This suggests long-term top-line revenue support for Century Communities as new home inventory remains well below historical averages.
  
• Community count growth sets a platform for scale and future sales expansion: The company has achieved a record community count (327 as of Q2), expects year-end increases in the mid-single digits, and maintains a significant lot pipeline (~70,000 lots owned/controlled). This expanding operational footprint provides a strong multi-year base for future home sales growth and associated revenue and earnings potential.
  
• Improving construction cost control and cycle times enhance margin resilience: Century Communities managed to reduce direct construction costs year-over-year and sequentially (down 3% and 2%, respectively) and further improve average build cycle times (~4 months with room for additional gains). These operational efficiencies can help offset margin pressures from incentives or land inflation, supporting improving net margins and cash flow over time.
  
• Share repurchases and disciplined capital allocation drive incremental shareholder value: The company has aggressively repurchased over 8% of its shares outstanding since 2024 at significant discounts to book value (Q2 buybacks at $54.35 versus $86.39 book value/share), and is maintaining a stable dividend, supporting per-share earnings growth and enhancing long-term total shareholder returns.
  
• Flexible, land-light business model reduces risk and enhances adaptability: Century's approach to land acquisition (more traditional option agreements and renegotiations) is designed to provide flexibility to exit or renegotiate deals with minimal feasibility costs, which can help preserve balance sheet strength and support stable earnings growth over market cycles, even during industry downturns.

Valuation

• The analysts have a consensus price target of $59.5 for Century Communities based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $49.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $114.5 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 9.1%.
• Given the current share price of $67.94, the analyst price target of $59.5 is 14.2% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.