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Robust Housing Market to Aid Lennar's (LEN) Q4 Earnings

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Lennar Corporation (LEN - Free Report) is slated to report results for fourth-quarter fiscal 2020 (ended Nov 30) after the closing bell on Dec 16.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 40.4% and 10.1%, respectively. Notably, this Miami-based homebuilder surpassed earnings expectations in 10 of the trailing 11 quarters.

On a year-over-year basis, earnings and revenues grew 33.3% and 0.2%.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been revised upward by 4.4% to $2.38 over the past 30 days. The estimated figure indicates an increase of 11.7% from $2.13 per share reported in the year-ago quarter. However, the consensus mark for revenues is pegged at $6.53 billion, suggesting a 6.3% decrease from the year-ago reported figure of $6.97 billion.

Let’s see how things have shaped up for this announcement.

Lennar Corporation Price and EPS Surprise

 

Lennar Corporation Price and EPS Surprise

 

Lennar Corporation price-eps-surprise | Lennar Corporation Quote

 

Factors to Note

Lennar’s fiscal fourth-quarter Homebuilding revenues (accounting for 93.4% of total revenues) are expected to have declined from the year-ago level due to lower deliveries, given disruptions caused by the coronavirus outbreak in the United States. During COVID-19-led shutdown period, Lennar slowed land purchases, land development and starts. However, as sales started to recover, the company restarted land development and starts. Accordingly, it expects to have fewer deliveries in the fiscal fourth quarter because of the mid-March through April stall.

Although the company — which shares space with PulteGroup (PHM - Free Report) , D.R. Horton (DHI - Free Report) and Toll Brothers (TOL - Free Report) in the Zacks Building Products - Home Builders industry — built homes and worked remotely in the quarter to be reported, shortage of building lots might have impacted sales. Also, lower revenues in Lennar's ancillary businesses may have added to the woes.

Nonetheless, lower mortgage rates and demand for affordable housing from multiple demographic groups are likely to have given a boost to its order growth. The company has been shifting the business mix to lower-priced homes. This is expected to have boosted its sales absorption pace to some extent.

The Zacks Consensus Estimate for the company’s Homebuilding revenues is pegged at $6.22 billion, which indicates a decrease of 4.9% from the year-ago period but an 12.9% increase from the last reported quarter.

For the fiscal fourth quarter, Lennar expects deliveries in the range of 15,500-16,000 homes, indicating a decline from the year-ago reported figure of 16,420. The consensus estimate for deliveries for the to-be-reported quarter is currently pegged at 15,791 homes, indicating a decrease of 3.9% from a year ago but an 14.1% increase sequentially. The company expects ASP within $390,000, suggesting a decline from $393,000 a year ago. The consensus estimate for ASP of homes delivered is pegged at $390,000, indicating a 0.8% decline from the year-ago period and 1.5% sequentially. It expects new orders in the 13,800-14,300 range versus 13,089 reported in fourth-quarter fiscal 2019.

From the margin perspective, lower average sales prices have been threatening Lennar’s margins. The company’s focus on targeting more first-time homebuyers and lower-priced homes has been impacting margins. This is likely to have hampered its performance in the quarter to be reported. Nonetheless, Lennar has been focusing on controlling construction costs and managing sales price prudently, which may have benefited gross margin in the fiscal fourth quarter. The company expects homebuilding gross margin in the 23.25-23.5% range, pointing to an increase from 21.5% a year ago mainly on a robust pricing environment.

Again, Lennar has been focused on continuous improvement in the SG&A (selling, general and administrative) line owing to operating leverage and investments in technology. The company expects SG&A expenses, as a percentage of home sales, within 7.7-7.8%. A year ago, the metric was recorded at 7.6%.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Lennar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Earnings ESP: The company has an Earnings ESP of -1.33%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Lennar carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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