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On January 12, Zacks Investment Research upgraded Lennar Corporation (LEN - Analyst Report) to a Zacks Rank #1 (Strong Buy), just a few days before it is due to report its fourth quarter and full year 2012 results.

Why the Upgrade?

Lennar has announced impressive results in all the quarters of 2012. Lennar has witnessed solid year-over-year growth in new home orders, average selling prices and home closings in all the three quarters of 2012. Margins have also been above average, despite rising costs, driven by strong operating leverage. Lennar appears confident about significant growth in fourth quarter and even thereafter as the housing fundamentals improve rapidly.

Lennar is due to report its fourth quarter results before the opening bell on January 15. The Zacks Consensus Estimate at the moment is 43 cents per share.

Lennar reported third quarter results on September 27, 2012. Third quarter adjusted earnings (excluding income tax adjustments) of 34 cents per share beat the Zacks Consensus Estimate by 25.9%. Earnings also skyrocketed 209% from the prior-year quarter. The earnings growth was driven by improved homebuilding revenues and solid operating margins.

Total revenue in the quarter climbed 34% to $1.1 billion, driven by pricing and volume growth with the housing market stabilizing. Revenues also beat the Zacks Consensus Estimate of $1.03 billion.

Lennar has delivered positive earnings surprises in all the quarters of 2012 with an impressive average earnings surprise of 27.4% in the trailing four quarters. We believe that the company is performing better than its peers by increasing selling prices, reducing incentives, improving volumes and by making opportunistic land acquisitions. Moreover, Lennar’s focus on the quality of communities instead of quantity also benefits its margins and new sales orders.

Other Stocks to Consider

With the housing sector improving steadily, many other housing companies are currently doing well. Some names worth mentioning are Meritage Homes Corporation (MTH - Snapshot Report) -   Zacks #1 rank and PulteGroup, Inc. (PHM - Analyst Report) - Zacks Rank #2 (short term ‘Buy’).

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