11:38 AM EDT, 07/05/2024 (MT Newswires) -- LGI Homes' ( LGIH ) second-quarter home closing miss likely indicates affordability concerns and could weigh on the homebuilder's financial results for the three-month period, Wedbush Securities said Friday.

On Wednesday, the company reported home closings of 1,655 during the June quarter, down from 1,854 a year earlier and below Wedbush's views for 1,742.

Last week, Wedbush reiterated its negative outlook on LGI and other entry-level builders largely due to affordability concerns. The company's closings miss "appears supportive of that view," Wedbush analysts Jay McCanless and Brian Violino said in a Friday note to clients.

LGI shares were down 3.7% in Friday trade.

"We remain cautious around all aspects of the domestic housing market due to rising levels of new and existing home inventories, a slowdown in monthly new and existing home sales, and continued affordability pressures from existing home prices at record highs and 30-year mortgage rates near 7%," the brokerage said last week.

LGI is scheduled to report its second-quarter financial results July 30. Wedbush on Friday trimmed its earnings outlook to $1.70 a share from $1.93 and its revenue estimate to $587.5 million from $618.2 million. The Thomson Reuters consensus is for $2.30 and $642.4 million, respectively, Wedbush said.

The brokerage now pegs full-year EPS at $7.96 and home closings at 7,200, down from its prior outlooks for $8.33 and 7,300, respectively. For 2025, the firm now expects EPS of $9.70, down from the previously projected $10.37, according to the note.

"We believe LGI's decision to focus on internal development of land parcels should result in a (2024) gross margin within management's guidance range since it does not appear LGI is chasing volume," the analysts said. "We will look for an update on the self-development strategy and on LGI's community count goals for (2024) and (2025) because our (2025) assumptions rely heavily" on the company reaching 150 communities by the end of this year, they added.

Wedbush reiterated its underperform rating on the LGI stock, with a $74 price target.

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