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Lennar (LEN) Banks on Strategic Initiatives Amid High Costs
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Lennar Corporation (LEN - Free Report) is benefiting from its efficient implementation of Lennar machine growth plan, land-lighter strategy and playbook strategies, reflecting its intent focus on generating strong cash flow, increasing returns on equity and assets, and driving a strong bottom line.
This Zacks Rank #3 (Hold) company’s earnings estimates for fiscal 2024 showcase a growth rate of 0.9% from the year-ago period, with the to-be-reported quarter’s earnings estimates growth rate being 4.7% year over year. LEN also delivered a trailing four-quarter earnings surprise of 21.7%, on average. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of outperformance in the near term.
However, Lennar is facing headwinds in the form of high costs and expenses given the hiked interest rate and uncertain economic scenarios.
Image Source: Zacks Investment Research
Shares of this homebuilding and financial services company have increased 33% in the past three months, underperforming the Zacks Building Products - Home Builders industry’s 34.3% growth.
Attractive Factors of the Stock
Lennar Machine Boosts Growth: To maintain consistent production levels and improve its inventory turn, Lennar incorporated a digital marketing platform with its dynamic pricing model to drive sales volume. This entire configuration was termed the Lennar machine. The efficient execution of this operating strategy helped the company to improve sales pace as well as ensured the sale of the right homes at the right pace.
During fourth-quarter fiscal 2023 earnings call, Lennar stated that continuous engagement with the Lennar machine enabled its divisions to be in a continuous learning process and implemented ways to enhance the machine further. These continuous learnings and improving processes enabled the company to witness house starts and sales of 37,053 and 37,032 respectively in the second half of fiscal 2023.
Land-Lighter Strategy: Lennar has maintained its relentless focus on a land-lighter strategy. The company continues to migrate toward a significantly smaller land-owned inventory, driving business and cash flow. At the end of the fourth quarter of fiscal 2023, controlled homesites, as a percentage of total owned and controlled homesites, increased to 76% from 69% in the year-ago period.
As a result, the year’s supply owned improved to 1.4 years at the end of the fiscal fourth quarter from 1.9 years in the prior year. The reduction in cycle time (down 24% year over year) and reduction in owned land will enhance cash flow and help improve inventory turn, which is now 1.5 times.
The company continues to emphasize refining its land acquisition and management, focusing on optimizing land and land bank strategy.
Impressive Q4 Results: Lennar reported impressive fourth-quarter fiscal 2023 results, wherein earnings and revenues topped the Zacks Consensus Estimate by 11.4% and 6.1%, respectively. Also, the top and the bottom line grew 7.8% and 3% year over year, respectively. The uptrend was backed by its solid operating strategy of focusing on production and sales pace over price, land-light strategy and favorable pricing and product mix. For first-quarter fiscal 2024, the company expects deliveries within 16,500-17,000 homes with an ASP of nearly $420,000. In the year-ago period, deliveries were 13,659 homes at an ASP of $448,000.
Headwinds
High Costs & Expenses: Lennar has been witnessing challenges related to raw material shortages and municipal delays. Raw material inflation is impacting homebuilders’ margins. Although Lennar has been navigating the challenges associated with supply shortages well, these headwinds are serious threats to the company’s margins.
Due to an increase in the use of brokers due to current market conditions, SG&A expenses in the fiscal fourth quarter of 2023 increased 22.2% to $688 million year over year. Also, the company’s gross margin on home sales declined 60 basis points (bps) to 24.2% year over year and 20 bps sequentially attributable to a decrease in average sales price.
Key Picks
Here are some better-ranked stocks from the Construction sector.
It has a trailing four-quarter earnings surprise of 37.5%, on average. Shares of FLR have gained 13.3% in the past year. The Zacks Consensus Estimate for FLR’s 2023 sales and earnings per share (EPS) indicates an improvement of 12.4% and 197.6%, respectively, from the prior-year levels.
M-tron Industries, Inc. (MPTI - Free Report) currently sports a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 309.8% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year.
Willdan Group, Inc. (WLDN - Free Report) currently sports a Zacks Rank of 1. WLDN delivered a trailing four-quarter earnings surprise of a whopping 850.6%, on average. The stock has gained 27.5% in the past year.
The Zacks Consensus Estimate for WLDN’s 2023 sales and EPS indicates growth of 14.1% and 47.7%, respectively, from a year ago.
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Lennar (LEN) Banks on Strategic Initiatives Amid High Costs
Lennar Corporation (LEN - Free Report) is benefiting from its efficient implementation of Lennar machine growth plan, land-lighter strategy and playbook strategies, reflecting its intent focus on generating strong cash flow, increasing returns on equity and assets, and driving a strong bottom line.
This Zacks Rank #3 (Hold) company’s earnings estimates for fiscal 2024 showcase a growth rate of 0.9% from the year-ago period, with the to-be-reported quarter’s earnings estimates growth rate being 4.7% year over year. LEN also delivered a trailing four-quarter earnings surprise of 21.7%, on average. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of outperformance in the near term.
However, Lennar is facing headwinds in the form of high costs and expenses given the hiked interest rate and uncertain economic scenarios.
Image Source: Zacks Investment Research
Shares of this homebuilding and financial services company have increased 33% in the past three months, underperforming the Zacks Building Products - Home Builders industry’s 34.3% growth.
Attractive Factors of the Stock
Lennar Machine Boosts Growth: To maintain consistent production levels and improve its inventory turn, Lennar incorporated a digital marketing platform with its dynamic pricing model to drive sales volume. This entire configuration was termed the Lennar machine. The efficient execution of this operating strategy helped the company to improve sales pace as well as ensured the sale of the right homes at the right pace.
During fourth-quarter fiscal 2023 earnings call, Lennar stated that continuous engagement with the Lennar machine enabled its divisions to be in a continuous learning process and implemented ways to enhance the machine further. These continuous learnings and improving processes enabled the company to witness house starts and sales of 37,053 and 37,032 respectively in the second half of fiscal 2023.
Land-Lighter Strategy: Lennar has maintained its relentless focus on a land-lighter strategy. The company continues to migrate toward a significantly smaller land-owned inventory, driving business and cash flow. At the end of the fourth quarter of fiscal 2023, controlled homesites, as a percentage of total owned and controlled homesites, increased to 76% from 69% in the year-ago period.
As a result, the year’s supply owned improved to 1.4 years at the end of the fiscal fourth quarter from 1.9 years in the prior year. The reduction in cycle time (down 24% year over year) and reduction in owned land will enhance cash flow and help improve inventory turn, which is now 1.5 times.
The company continues to emphasize refining its land acquisition and management, focusing on optimizing land and land bank strategy.
Impressive Q4 Results: Lennar reported impressive fourth-quarter fiscal 2023 results, wherein earnings and revenues topped the Zacks Consensus Estimate by 11.4% and 6.1%, respectively. Also, the top and the bottom line grew 7.8% and 3% year over year, respectively. The uptrend was backed by its solid operating strategy of focusing on production and sales pace over price, land-light strategy and favorable pricing and product mix. For first-quarter fiscal 2024, the company expects deliveries within 16,500-17,000 homes with an ASP of nearly $420,000. In the year-ago period, deliveries were 13,659 homes at an ASP of $448,000.
Headwinds
High Costs & Expenses: Lennar has been witnessing challenges related to raw material shortages and municipal delays. Raw material inflation is impacting homebuilders’ margins. Although Lennar has been navigating the challenges associated with supply shortages well, these headwinds are serious threats to the company’s margins.
Due to an increase in the use of brokers due to current market conditions, SG&A expenses in the fiscal fourth quarter of 2023 increased 22.2% to $688 million year over year. Also, the company’s gross margin on home sales declined 60 basis points (bps) to 24.2% year over year and 20 bps sequentially attributable to a decrease in average sales price.
Key Picks
Here are some better-ranked stocks from the Construction sector.
Fluor Corporation (FLR - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
It has a trailing four-quarter earnings surprise of 37.5%, on average. Shares of FLR have gained 13.3% in the past year. The Zacks Consensus Estimate for FLR’s 2023 sales and earnings per share (EPS) indicates an improvement of 12.4% and 197.6%, respectively, from the prior-year levels.
M-tron Industries, Inc. (MPTI - Free Report) currently sports a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 309.8% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year.
Willdan Group, Inc. (WLDN - Free Report) currently sports a Zacks Rank of 1. WLDN delivered a trailing four-quarter earnings surprise of a whopping 850.6%, on average. The stock has gained 27.5% in the past year.
The Zacks Consensus Estimate for WLDN’s 2023 sales and EPS indicates growth of 14.1% and 47.7%, respectively, from a year ago.