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In the last reported quarter, the company’s earnings and total revenues topped the Zacks Consensus Estimate by 5.6% and 2.2%, respectively. It is to be noted that this Miami-based homebuilder surpassed earnings expectations in the trailing 21 quarters.
On a year-over-year basis, fiscal second-quarter earnings and revenues increased 15% and 9%, respectively.
For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has declined to $3.62 from $3.63 over the past 60 days. The estimated figure indicates a decrease of 7.4% from the $3.91 reported in the year-ago quarter.
The consensus mark for revenues is pegged at $9.29 billion, suggesting 6.4% growth from the year-ago reported figure of $8.73 billion.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for LEN
Our proven model does not 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. This is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Lennar’s fiscal third-quarter home sales are expected to have increased from the year-ago level, given higher deliveries. The company has been gaining from its solid operating strategy of focusing on production and sales pace over price, land light strategy and favorable pricing and product mix.
Our model predicts home sales to increase 5.4% year over year to $8.73 billion in the quarter. Homebuilding revenues are expected to be $8.76 billion, up 5.3% year over year.
On the fiscal second-quarter earnings call, LEN highlighted that it expects home deliveries of 20,500-21,000 units with ASP between $420,000 and $425,000. Meanwhile, our estimate for deliveries for the to-be-reported quarter is currently pegged at 20,570 homes, indicating a rise of 10.8% from 18,559 units a year ago. We expect the ASP of the delivered units to be $424,410 indicating a decline from $448,000 a year ago, reflecting discounting and a smaller square foot sales mix versus last year.
Lennar expects new orders in the range of 20,500-21,000, pointing to growth from 19,666 reported in third-quarter fiscal 2023. Our estimate for new orders is currently pegged at 20,795 homes, reflecting 5.7% growth from a year ago. Low-existing homes for sale have been driving future demand for new homes in the market. Also, digital marketing platforms and a dynamic pricing model bode well.
Our model predicts a backlog (units and values) of 18,098 homes or $8.51 billion compared with the year-ago quarter’s figures of 21,321 units or $9.85 billion.
That said, higher land, labor and raw material costs are expected to have put pressure on fiscal third-quarter margins. The company expects the homebuilding gross margin to be 23%, pointing to a decline from 24.4% a year ago.
Meanwhile, Lennar expects homebuilding selling, general and administrative (SG&A) expenses, as a percentage of home sales, to be in the range of 7.3-7.5%. Our model predicts homebuilding SG&A to be 7.5% in the quarter compared with the year-ago quarter’s figure of 7%. The increase is likely to be due to a greater reliance on brokers driven by current market conditions, along with higher digital marketing, advertising and insurance costs aimed at boosting direct sales.
Meanwhile, Financial Services operating earnings are expected to be in the range of $135-$140 million in the fiscal third quarter. Our model predicts Financial Services operating earnings to be $139.9 million in the quarter compared with the year-ago quarter’s figure of $149 million.
Lennar’s Price Performance & Valuation
LEN’s stock has exhibited an upward movement in the year-to-date (YTD) period. The stock has gained 24.7%, underperforming the Zacks Building Products - Home Builders industry’s rise of 28% in the same time frame.
The company has also underperformed its peer companies like D.R Horton (DHI - Free Report) , up 28.2% YTD), NVR, Inc. (NVR - Free Report) , up 33.9%) and PulteGroup, Inc. (PHM - Free Report) , up 35.2%).
YTD Price Performance of LEN Stock
Image Source: Zacks Investment Research
LEN stock is trading slightly at a premium compared with the industry and slightly higher than its median, reflecting a stretched valuation. For investors focused on fundamentals, this could be a point of caution.
Image Source: Zacks Investment Research
How to Play Lennar Stock?
Lennar’s ability to adapt to fluctuating market conditions, driven by robust demand and operational efficiencies, is reflected in the company’s performance in the first two quarters of 2024. While challenges around affordability and market volatility persist, Lennar’s strategic focus on an asset-light model and consistent production should position it for continued success throughout 2024 and beyond. Lennar's strategy involves shifting to an asset-light, land-light model through just-in-time homesite delivery and off-balance-sheet land options. This reduces risk and improves liquidity. Also, the planned spin-off of its land assets into a new public company could further strengthen its financial position.
Despite fluctuations in rates, ranging from 6.75% to 7.3%, Lennar has been able to adapt by offering incentives such as interest rate buy-downs and price reductions to mitigate affordability concerns. The company has focused on an "even-flow" manufacturing model, emphasizing consistent production and cost reductions, enabling better cash flow and improved margins. The company continued to maintain a low debt-to-capital ratio of 7.7% in the fiscal second-quarter end, the lowest in its history.
Low housing inventory and favorable demographic trends are expected to drive growth in the homebuilding market. Again, the anticipated rate cut this month could provide an additional boost to the housing market, further enhancing the outlook for homebuilders like Lennar, along with peers such as D.R. Horton, PulteGroup, and NVR.
However, the unpredictability of the magnitude of interest rate cuts and inflation continues to moderate the housing market’s strength, requiring Lennar to maintain flexibility in its pricing and production strategies. The spin-off of land assets and other strategic moves are still in progress, which adds complexity and temporary cost pressures.
Given these headwinds, including the company's underperformance compared to its peers, high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Lennar’s performance and market conditions before considering an investment in this stock.
Image: Bigstock
Pre-Q3 Earnings Review: Buy, Sell or Hold Lennar Stock?
Lennar Corporation (LEN - Free Report) is slated to report third-quarter fiscal 2024 results (ended Aug. 31) after the closing bell on Sept. 19.
In the last reported quarter, the company’s earnings and total revenues topped the Zacks Consensus Estimate by 5.6% and 2.2%, respectively. It is to be noted that this Miami-based homebuilder surpassed earnings expectations in the trailing 21 quarters.
On a year-over-year basis, fiscal second-quarter earnings and revenues increased 15% and 9%, respectively.
Lennar Corporation Price and EPS Surprise
Lennar Corporation price-eps-surprise | Lennar Corporation Quote
How Are Estimates Placed for LEN?
For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has declined to $3.62 from $3.63 over the past 60 days. The estimated figure indicates a decrease of 7.4% from the $3.91 reported in the year-ago quarter.
The consensus mark for revenues is pegged at $9.29 billion, suggesting 6.4% growth from the year-ago reported figure of $8.73 billion.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for LEN
Our proven model does not 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. This is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of 0.00%. 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 #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Shape LEN’s Q3 Results
Lennar’s fiscal third-quarter home sales are expected to have increased from the year-ago level, given higher deliveries. The company has been gaining from its solid operating strategy of focusing on production and sales pace over price, land light strategy and favorable pricing and product mix.
Our model predicts home sales to increase 5.4% year over year to $8.73 billion in the quarter. Homebuilding revenues are expected to be $8.76 billion, up 5.3% year over year.
On the fiscal second-quarter earnings call, LEN highlighted that it expects home deliveries of 20,500-21,000 units with ASP between $420,000 and $425,000. Meanwhile, our estimate for deliveries for the to-be-reported quarter is currently pegged at 20,570 homes, indicating a rise of 10.8% from 18,559 units a year ago. We expect the ASP of the delivered units to be $424,410 indicating a decline from $448,000 a year ago, reflecting discounting and a smaller square foot sales mix versus last year.
Lennar expects new orders in the range of 20,500-21,000, pointing to growth from 19,666 reported in third-quarter fiscal 2023. Our estimate for new orders is currently pegged at 20,795 homes, reflecting 5.7% growth from a year ago. Low-existing homes for sale have been driving future demand for new homes in the market. Also, digital marketing platforms and a dynamic pricing model bode well.
Our model predicts a backlog (units and values) of 18,098 homes or $8.51 billion compared with the year-ago quarter’s figures of 21,321 units or $9.85 billion.
That said, higher land, labor and raw material costs are expected to have put pressure on fiscal third-quarter margins. The company expects the homebuilding gross margin to be 23%, pointing to a decline from 24.4% a year ago.
Meanwhile, Lennar expects homebuilding selling, general and administrative (SG&A) expenses, as a percentage of home sales, to be in the range of 7.3-7.5%. Our model predicts homebuilding SG&A to be 7.5% in the quarter compared with the year-ago quarter’s figure of 7%. The increase is likely to be due to a greater reliance on brokers driven by current market conditions, along with higher digital marketing, advertising and insurance costs aimed at boosting direct sales.
Meanwhile, Financial Services operating earnings are expected to be in the range of $135-$140 million in the fiscal third quarter. Our model predicts Financial Services operating earnings to be $139.9 million in the quarter compared with the year-ago quarter’s figure of $149 million.
Lennar’s Price Performance & Valuation
LEN’s stock has exhibited an upward movement in the year-to-date (YTD) period. The stock has gained 24.7%, underperforming the Zacks Building Products - Home Builders industry’s rise of 28% in the same time frame.
The company has also underperformed its peer companies like D.R Horton (DHI - Free Report) , up 28.2% YTD), NVR, Inc. (NVR - Free Report) , up 33.9%) and PulteGroup, Inc. (PHM - Free Report) , up 35.2%).
YTD Price Performance of LEN Stock
Image Source: Zacks Investment Research
LEN stock is trading slightly at a premium compared with the industry and slightly higher than its median, reflecting a stretched valuation. For investors focused on fundamentals, this could be a point of caution.
Image Source: Zacks Investment Research
How to Play Lennar Stock?
Lennar’s ability to adapt to fluctuating market conditions, driven by robust demand and operational efficiencies, is reflected in the company’s performance in the first two quarters of 2024. While challenges around affordability and market volatility persist, Lennar’s strategic focus on an asset-light model and consistent production should position it for continued success throughout 2024 and beyond. Lennar's strategy involves shifting to an asset-light, land-light model through just-in-time homesite delivery and off-balance-sheet land options. This reduces risk and improves liquidity. Also, the planned spin-off of its land assets into a new public company could further strengthen its financial position.
Despite fluctuations in rates, ranging from 6.75% to 7.3%, Lennar has been able to adapt by offering incentives such as interest rate buy-downs and price reductions to mitigate affordability concerns. The company has focused on an "even-flow" manufacturing model, emphasizing consistent production and cost reductions, enabling better cash flow and improved margins. The company continued to maintain a low debt-to-capital ratio of 7.7% in the fiscal second-quarter end, the lowest in its history.
Low housing inventory and favorable demographic trends are expected to drive growth in the homebuilding market. Again, the anticipated rate cut this month could provide an additional boost to the housing market, further enhancing the outlook for homebuilders like Lennar, along with peers such as D.R. Horton, PulteGroup, and NVR.
However, the unpredictability of the magnitude of interest rate cuts and inflation continues to moderate the housing market’s strength, requiring Lennar to maintain flexibility in its pricing and production strategies. The spin-off of land assets and other strategic moves are still in progress, which adds complexity and temporary cost pressures.
Given these headwinds, including the company's underperformance compared to its peers, high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Lennar’s performance and market conditions before considering an investment in this stock.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.