A month has gone by since the last earnings report for Lennar (LEN Quick QuoteLEN - Free Report) . Shares have added about 2.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lennar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lennar Q2 Earnings & Revenues Top Estimates, Orders Up

Lennar Corporation reported better-than-expected results for second-quarter fiscal 2021 (ended May 31, 2021). The quarterly results benefited from solid execution of homebuilding and financial services businesses. Also, robust housing market conditions added to its bliss.

Stuart Miller, Executive Chairman of Lennar, said, "The housing market has proven to be robust in the current environment and we expect it to continue to be a significant driver in the recovery of the overall economy.” He also added that the company is considering upsizing the asset base of the businesses it plans to spin off to $5-$6 billion, instead of the $3-$5 billion it discussed last quarter"Given the strength of the market which has accelerated our earnings and equity growth.”

The company reported adjusted quarterly earnings of $2.95 per share, handily surpassing the Zacks Consensus Estimate of $2.34 by 26.1%. In the year-ago period, it reported earnings of $1.50 per share. This marked the ninth consecutive quarter of an earnings beat. The results mainly benefited from higher revenues, effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in increased operating leverage.

Revenues of $6.43 billion topped the consensus mark of $6.17 billion by 4.3%. The reported figure also grew 21.6% year over year.

Segment Details

Homebuilding: Revenues at the segment totaled $6.03 billion, up 21.8% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $5.98 billion to total revenues, up 21.4% from a year ago. However, land sales accounted for $38.8 million, up 95.6% from the prior-year quarter. Higher home sales were due to increased new home deliveries.

Home deliveries for the reported quarter improved 14% from the year-ago level to 14,462 units. The average sales price of homes delivered was $414,000 compared with $389,000 in the year-ago figure.

New orders grew 32% from the year-ago quarter to 17,157 homes. Potential value of net orders also increased 56% year over year to $7.6 billion.

Backlog at fiscal second quarter-end climbed up 38% from a year ago to 24,741. Potential housing revenues from backlog also advanced 56% year over year to $11 billion.

Homebuilding Margins

Gross margin on home sales was 26.1% for the quarter, up 450 basis points (bps). The upside can be attributed to pricing power, its efforts toward reducing construction costs and a solid housing market scenario.

Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved 70 bps to 7.6% on improved operating leverage, given benefits from the company's technology efforts. Notably, this marks the lowest percentage for a second quarter in Lennar’s history.

Homebuilding operating earnings of $1.11 billion for the quarter increased 76.2% from the year-ago period.

Financial Services: The segment’s revenues increased 11.5% year over year to $218.7 million for the reported quarter. Operating earnings came in at $121.2 million, down from $150.6 million from a year ago as the second quarter of 2020 included a $61.4-million gain on deconsolidation of a previously consolidated entity, and strong mortgage business owing to higher volumes as well as margins.

Lennar Multi-Family: Revenues of $177.5 million at the segment were up 44.1% from the prior-year quarter. Also, the segment reported operating earnings of $22.4 million for the quarter versus operating loss of $0.6 million a year ago.

Lennar Other: The segment’s revenues totaled $6 million, down from $18.5 million a year ago. The segment incurred operating loss of $54.1 million for the quarter versus $18 million in the comparable period of 2020.

Financials

Lennar had homebuilding cash and cash equivalents of $2.58 billion as of May 31, 2021, down from $2.7 billion on Nov 30, 2020. Total homebuilding debt was $5.89 billion as of May 31, 2021, down from $5.96 billion on Nov 30, 2020. Homebuilding debt to capital at fiscal second quarter-end was 23.1% (an all-time company low) compared with 24.9% at fiscal 2020-end.

Notably, the company has no outstanding borrowings under the $2.5-billion revolving credit facility, with $5.1 billion of available capacity.

Guidance

For third-quarter fiscal 2021, Lennar expects deliveries in the range of 15,800-16,100 homes and homebuilding gross margin to be 27-27.5%.

For fiscal 2021, it reaffirms deliveries in the range of 62,000-64,000 homes but lifted ASP expectation to $420,000 from $400,000.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 12.88% due to these changes.

VGM Scores

Currently, Lennar has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lennar has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.