LGIH WACC - Weighted Average Cost of Capital
The WACC of LGI Homes Inc (LGIH) is 6.7%.
| Range | Selected | |
| Cost of equity | 6.9% - 9.3% | 8.1% |
| Tax rate | 21.5% - 22.7% | 22.1% |
| Cost of debt | 6.3% - 7.5% | 6.9% |
| WACC | 5.9% - 7.4% | 6.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.65 | 0.79 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.9% | 9.3% |
| Tax rate | 21.5% | 22.7% |
| Debt/Equity ratio | 1.11 | 1.11 |
| Cost of debt | 6.3% | 7.5% |
| After-tax WACC | 5.9% | 7.4% |
| Selected WACC | 6.7% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| LGIH | LGI Homes Inc | 1.11 | 0.65 | 0.35 |
| BZH | Beazer Homes USA Inc | 1.45 | 0.85 | 0.4 |
| CCS | Century Communities Inc | 0.86 | 0.38 | 0.23 |
| DHI | D.R. Horton Inc | 0.15 | 0.24 | 0.21 |
| HOV | Hovnanian Enterprises Inc | 1.49 | 0.87 | 0.4 |
| IBP | Installed Building Products Inc | 0.19 | 0.76 | 0.66 |
| LSEA | Landsea Homes Corp | 1.77 | 0.66 | 0.28 |
| MHO | M/I Homes Inc | 0.33 | 0.63 | 0.5 |
| NVR | NVR Inc | 0.04 | 0.14 | 0.13 |
| STHI | Sprout Tiny Homes Inc | 5.23 | -2.01 | -0.39 |
| Low | High | |
| Unlevered beta | 0.26 | 0.37 |
| Relevered beta | 0.48 | 0.69 |
| Adjusted relevered beta | 0.65 | 0.79 |
LGIH's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for LGIH:
cost_of_equity (8.10%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.65) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.