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Ahead of Jobs Data, Lennar Beats on Home Sales

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Tuesday, October 3, 2017

After a busy week of new economic data — as well as speeches from members of the Federal Open Market Committee (FOMC) — last week, this week we look toward September employment metrics. The first of these will come out ahead of the opening bell tomorrow with the ADP (ADP - Free Report) private-sector jobs totals for last month, followed by Friday’s all-encompassing non-farm payroll results from the Bureau of Labor Statistics. Expectations are for roughly 150-160K new jobs for the month, with the unemployment rate holding steady at 4.4%.

However, sometimes an earnings report from a particular company can illustrate the relative health of industries on a more macro-level, and this morning we see results from new home builder Lennar Corp. (LEN - Free Report) . This company has now beaten earnings estimates for the seventh straight quarter, which is impressive. Other reads also point to a solid fiscal Q3 2017 (August), which include improved demand and higher price points along the way.

Lennar is based in Miami, FL, which took an indirect hit from Hurricane Irma a month ago. However, we don’t see much negative impact in the company’s Q3 as a result; this will likely become more obvious in the company’s Q4 report (and possibly beyond). For a more extensive look at this Zacks Rank #3 (Hold) company’s earnings report, click here.

Q3 earnings of $1.06 per share topped expectations by a nickel. Revenues in the quarter rose 15% year over year to $3.26 billion, ahead of the $3.22 billion in the Zacks consensus. A higher number than expected of new homes delivered was cited for the company’s outperformance.

Lennar also saw an increase of 20 basis points on home sales gross margin, and financial services rose 12.3% year over year. Part of this came from very impressive multi-family home sales growth, up 26.7% from Q3 2016 to $103.4 million in the quarter. Further, expenses were ratcheted down a tad in Q3, with SG&A costs down 9.2% year over year.

So what we see in microcosm here — and it will take reports from Lennar competitors such as D.R. Horton (DHI - Free Report) and Beazer Homes (BZH - Free Report) in weeks to come to flesh out these narratives — that the new home market is showing signs of growth. They look modest, but the numbers are all pointed in the right direction. And as new homes are bought by families currently in rental units and/or at home with Mom and Dad, this opens up availability for more consumers to enter those rental units. Those in starter homes may more easily upgrade to their “dream homes,” helping accelerate the cycle. This is especially important as the baby boomer generation decides to downsize to smaller homes and assisted living facilities.

The pre-market is up again across the board, following a new set of all-time closing highs for the Dow, Nasdaq and S&P 500. Even the more volatile Russell 2000 Small-Cap looks strong. Find out more from Zacks Exec VP Kevin Matras’ latest Profit from the Pros: October Off to a Great Start.

Mark Vickery
Senior Editor

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