A month has gone by since the last earnings report for Lennar (LEN Quick QuoteLEN - Free Report) . Shares have added about 8.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Lennar Q2 Earnings & Revenues Top Estimates, View Up

Lennar Corporation reported impressive results for second-quarter fiscal 2023, where earnings and revenues beat the Zacks Consensus Estimate.

The housing market condition is normalizing and has been gaining from the pent-up demand condition, given the shortage of existing homes in the sector.

The homebuilder has also lifted its deliveries expectation for the year.

Pertaining to the prospect, Stuart Miller, executive chairman of Lennar, said, “As consumers have come to accept a "new normal" range for interest rates, demand has accelerated, leaving the market to reconcile the chronic supply shortage derived from over a decade of production deficits. Simply put, America needs more housing, particularly affordable workforce housing, and demand is strong when price and interest rates are affordable."

Quarterly Numbers

LEN reported adjusted quarterly earnings (excluding mark-to-market losses on technology investments) of $2.94 per share, which surpassed the Zacks Consensus Estimate of $2.32 per share by 26.7% but decreased 37.3% year over year.

Revenues of $8.05 billion topped the Zacks Consensus Estimate of $7.27 billion by 10.5% but declined 3.8% year over year.

Segment Details

Homebuilding: Revenues of the segment totaled $7.67 billion, down 4% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $7.6 billion to total revenues, down 4.1% from a year ago. The decrease was due to the lower average sales price of homes, partly offset by higher deliveries.

On the other hand, Land sales accounted for $16.3 million, up from $7.5 million in the prior-year quarter. The Other homebuilding unit contributed $17.1 million to homebuilding revenues, up from $6.8 million a year ago.

Home deliveries for the reported quarter improved 3% from the year-ago level to 17,074 units. The average sales price of homes delivered was $449,000, down 7% from the year-ago figure due to pricing-to-market and product mix.

New orders rose 0.5% from the year-ago quarter to 17,885 homes. Backlog at the fiscal second-quarter end declined 29.3% from a year ago to 20,214 homes. Potential housing revenues from backlog decreased 35.1% year over year to $9.53 billion.

The gross margin on home sales was 22.5% for the quarter, down 700 basis points (bps). The downside was due to lower revenues per square foot as LEN priced homes to market, while costs per square foot increased on higher materials and labor costs. Land costs also increased year over year.

Selling, general and administrative or SG&A expenses — as a percentage of home sales — increased 60 bps to 6.7% due to more use of brokers in current market conditions.

Homebuilding’s operating earnings of $1.21 billion decreased from the year-ago level of $1.88 billion. Net margin as a percentage of home sales contracted 760 bps to 15.8%.

Financial Services: The segment’s revenues increased year over year to $223 million from $200.2 million for the reported quarter. Operating earnings for the quarter rose to $112.6 million from $103.9 million a year ago.

Lennar Multi-Family: Revenues of $151.7 million in the segment were down from $176 million in the prior-year quarter. The segment registered an operating loss of $8.2 million for the quarter against earnings of $0.7 million a year ago.

Lennar Other: The segment’s revenues totaled $0.4 million, down from $4.5 million a year ago. The segment’s operating loss was $18.4 million for the quarter compared with $108.4 million in the comparable period of 2022.

Financials

As of May 31, Lennar had homebuilding cash and cash equivalents of $4 billion, down from $4.62 billion at the end of fiscal 2022.

Total homebuilding debt was $3.85 billion as of May 31, down from $4.05 billion at the fiscal 2022-end. Homebuilding debt to capital at the fiscal first-quarter end was 13.3%, down from 14.4% at the fiscal 2022-end and 17.7% from a year-ago period.

LEN has no outstanding borrowings under the $2.6 billion revolving credit facility, thereby providing $6.6 billion of liquidity.

The company repurchased 2 million shares for $208 million at an average share price of $103.91 in the fiscal second quarter.
 

Guidance

For third-quarter fiscal 2023, the company expects deliveries within 17,750-18,250 homes with a gross margin on home sales of 23.5-24%. New orders are likely to be between 18,000 and 19,000 units, and the average selling price is expected to be similar to the fiscal second quarter.

SG&A expenses, as a percentage of home sales, are likely to be within 6.7-6.8% for the quarter. Financial Services’ operating earnings are expected to be in the range of $100-$105 million.

For fiscal 2023, Lennar projects deliveries between 68,000 and 70,000 (versus 62,000 and 66,000 homes expected earlier).

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted 39.96% due to these changes.

VGM Scores

At this time, Lennar has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lennar has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.