Earnings Preview: Lennar Corp.

One of the leading homebuilding companies in the U.S., Lennar Corporation ( LEN - Analyst Report ) , is set to unveil its second quarter fiscal 2012 results on June 27, 2012, before the start of trading. The Zacks Consensus Estimate for the second quarter is 17 cents on revenues of $946 million.

First Quarter 2012 Recap

Lennar Corporation reported net earnings of $15.0 million or 8 cents per share in the first quarter of fiscal 2012, compared to a loss of $10.1 million or 5 cents per share in the year-ago quarter. Reported earnings surpassed the Zacks Consensus Estimate by 60%.

Total revenue in the quarter climbed 30% year over year to $724.9 million, on the back of a record 33% increase in orders during the quarter, surpassing the Zacks Consensus Estimate of $698 million. The boom in the order was due to a stable market, backed by low home prices and low interest rates.

Agreement of Estimate Revisions

In the last 7 and 30 days, 1 each out of the 16 estimates have been revised upwards for the second-quarter of fiscal 2012, similarly in the last 7 days and 30 days period 1 each out of 16 estimates moved in the opposite direction.

In the last 7 and 30 days, 1 each out of the 17 estimates have been revised upwards for fiscal 2012, similarly in the last 7 days and 30 days period 1 each out of 17 estimates moved in the opposite direction.

In the last 7 and 30 days, none of the 15 estimates have been revised upwards for fiscal 2013, similarly in the last 7 days and 30 days period 2 each out of the 15 estimates were downwardly revised.

The housing market has begun to stabilize, as buying a home has become more reasonable than renting one, due to low home prices and low rate of interest. This situation is expected to impact housing operations positively in 2012.

Bullish analysts believe that the company is well positioned to capitalize on opportunities once the housing market recovers substantially. While some analysts believe that the market recovery may be slow and the company will perform accordingly.

Magnitude of Estimate Revisions

Given the limited estimate revisions, the consensus estimate for the second quarter of fiscal 2012 has remained static over the last 30 days including the last 7 days at 17 cents. However, after being static for 30 days, the consensus earnings estimate has declined by 1 cent during the last 7 days and is at 82 cents for fiscal 2012.

Given the limited estimate revisions, the consensus estimate for the fiscal 2013 has declined 2 cents over the last 7 days as well as 30 days to $1.34.

Surprise History

Lennar has surpassed earnings estimates in two of the last four quarters while meeting the consensus in one quarter and missing the estimates in last quarter of fiscal 2011. On average, the earnings surprise was a positive 43.04% in the trailing four quarters.

Our Recommendation

Overall, we are encouraged by the company’s impressive first quarter results and improved profitability. We believe the company is performing better than its peers by increasing sales prices, reducing incentives, improving volumes and investing in well-positioned high margin communities.

The Rialto segment is progressing well and has further growth opportunities as the market continues to improve. However, despite management optimism about improving home demand trends, we believe that the overall housing recovery will be slow.

We currently have a Neutral recommendation on Lennar Corporation. The stock carries a Zacks #3 Rank (a short-term Hold rating). One of its peers, Toll Brothers, Inc. ( TOL - Snapshot Report ) presently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.