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Lennar (LEN) Up 17% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Lennar (LEN - Free Report) . Shares have added about 17% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Lennar’s Q2 Earnings & Revenues Beat Estimates

Lennar’s second-quarter fiscal 2022 (ended May 31, 2022) earnings and revenues topped the Zacks Consensus Estimate, despite unprecedented supply-chain challenges.

Pertaining to the quarterly release, Jon Jaffe, the Co-Chief Executive Officer and Co-President of Lennar said, “During the quarter, our homebuilding machine continued to be intensely focused on production. Our cycle time during the quarter increased only slightly sequentially so it appears that the well documented supply chain issues have started to subside. Our quarterly starts and sales pace remained strong at 6.2 homes and 5.0 homes per community, respectively, in the second quarter."

Quarterly Numbers

LEN reported adjusted quarterly earnings (excluding mark-to-market gains and losses in both years) of $4.69 per share, surpassing the Zacks Consensus Estimate of $3.95. This marked the 13th consecutive quarter of an earnings beat. Reported earnings also increased 59% year over year, mainly benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage.

Revenues of $8.36 billion topped the consensus mark of $8.13 billion. The reported figure grew 30% year over year.

Segment Details

Homebuilding: Revenues of the segment totaled $7.98 billion, up 32.3% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $7.96 billion to total revenues, up 33.2% from a year ago. Land sales accounted for $7.5 million, down from $38.8 million in the prior-year quarter. The Other homebuilding unit contributed $6.78 million to homebuilding revenues, down from $8.53 million a year ago.

Home deliveries for the reported quarter improved 14% from the year-ago level to 16,549 units. The average sales price of homes delivered was $483,000, up 17% from the year-ago figure.

New orders grew 4% from the year-ago quarter to 17,792 homes. The potential value of net orders also increased 20% year over year to $9.1 billion.

Backlog at fiscal second-quarter end climbed 16% from a year ago to 28,624. Potential housing revenues from backlog also advanced 33% year over year to $14.7 billion.

Homebuilding Margins

Gross margin on home sales was 29.5% for the quarter, up 340 basis points (bps). The upside can be attributed to higher revenues per square foot, flat land costs, its efforts toward reducing construction costs and lower interest expense.

Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved 150 bps to 6.1% on improved operating leverage, given the benefits from a decrease in broker commissions and the company's technology efforts. This marks the lowest percentage for the second quarter in Lennar’s history.

Homebuilding operating earnings of $1.88 billion for the quarter increased from the year-ago level of $1.11 billion.

Financial Services: The segment’s revenues decreased 8.5% year over year to $200.2 million for the reported quarter. Operating earnings for the quarter also declined to $103.9 million from $121.3 million a year ago, owing to lower mortgage net margins, given stiff competition.

Lennar Multi-Family: Revenues of $176 million at the segment were slightly down from $177.5 million in the prior-year quarter. The segment registered operating earnings of $0.7 million for the quarter compared with $22.4 million a year ago.

Lennar Other: The segment’s revenues totaled $4.5 million, down from $6 million a year ago. The segment’s operating loss was $108.4 million for the quarter compared with $54.1 million in the comparable period of 2021.

Financials

Lennar had homebuilding cash and cash equivalents of $1.3 billion as of May 31, 2022, down from $2.7 billion on Nov 30, 2021. Total homebuilding debt was $4.64 billion as of May 31, 2022, almost in line with fiscal 2021 end. Homebuilding debt to capital at fiscal second-quarter end was 17.7%, down from 18.3% at fiscal 2021 end.

LEN has no outstanding borrowings under the $2.575 billion revolving credit facility, thereby providing $3.9 billion of available capacity.

Lennar repurchased 4.1 million shares for $320.6 million. This resulted in a return on equity of 21.4%, up 260 bps year over year.

Guidance

For fiscal 2022, Lennar expects deliveries of 68,000 homes. The company, however, refrained from providing guidance for other metrics, given the Fed’s actions that Lennar believes “are still quite fluid and responsive to inflation data.”

Stuart Miller, the executive chairman of Lennar, added that “the housing market will rebalance supply and demand, and interest rates and purchase price as market conditions evolve.”

For the fiscal third quarter, it expects deliveries within 17,000-18,500 homes (depicting an increase from 15,199 units a year ago), with a gross margin on home sales of 28.5-29.5% (indicating an increase from 27.3% a year ago). New orders are likely to be between 16,000 and 18,000 units (compared with 16,277 homes in the year-ago period), and ASP is expected to be slightly higher than the fiscal second-quarter level. In the year-ago period, it was $428,000. SG&A expenses, as a percentage of home sales, are likely to be 6-6.5% for the quarter, compared with  7% in the year-ago period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Lennar has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lennar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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