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Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, the company’s earnings and total revenues topped the Zacks Consensus Estimate by 7.7% and 1.4%, respectively. Notably, this Miami-based homebuilder surpassed earnings expectations in the trailing 22 quarters. The average surprise in the trailing four quarters can be observed in the chart below.
Image Source: Zacks Investment Research
On a year-over-year basis, fiscal third-quarter earnings inched down 0.3% while revenues grew 7.9%.
How Are Estimates Placed for LEN?
The Zacks Consensus Estimate for earnings per share has declined to $4.18 from $4.22 over the past 30 days. The estimated figure indicates a decrease of 19.2% from earnings of $5.17 per share reported in the year-ago quarter.
EPS Estimate Trend
Image Source: Zacks Investment Research
The consensus mark for revenues is pegged at $10.16 billion, indicating a 7.4% decline from the year-ago figure of $10.97 billion.
What the Zacks Model Unveils for LEN
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. This is not the case here, as you will see below.
Earnings ESP: LEN has an Earnings ESP of -4.11%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Lennar’s fourth-quarter top-line performance is expected to have been impacted by lower home deliveries due to increasing mortgage rate scenarios and decreased average selling price (ASP) of deliveries. Since the start of the to-be-reported quarter, the 30-year fixed mortgage rate (per Freddie Mac) has increased from 6.35% to 6.81% (as of Nov. 27). This indicates an affordability issue for the homebuyers as they struggle to make home-buying decisions while navigating through increased borrowing costs.
Synergies like the dynamic pricing model and digital marketing strategies, alongside increased incentives approach and mortgage rate buydowns, are likely to have been a support to the company’s underlying prospects. However, the current uncertainties surrounding the housing market are expected to have overshadowed its efforts to target a solid top-line performance.
LEN expects home deliveries during the quarter to range between 22,500 and 23,000 homes, depicting a fall from 23,795 homes delivered in the year-ago period. Delivery ASP is expected to be approximately $425,000, down year over year from $441,000.
For the quarter, our model predicts home sales to decline 6.5% year over year to $9.77 billion. Homebuilding revenues are expected to be $9.79 billion, down 6.9% year over year. We expect home deliveries to be down 3.4% to 22,987 units, with the ASP of the delivered units declining 3.7% to $424,850.
New Orders & Backlog
Lennar expects new orders to be in the range of 19,000-19,300 units, up from 17,366 homes reported a year ago. Our estimate for new orders is currently pegged at 19,066 homes, indicating 9.8% growth from a year ago. In an environment of affordability issues, the company offering sales incentives and mortgage rate buydowns is likely to have aided the new orders growth. Also, the optimism around the Fed rate cuts, after initiating two rate cuts within two months, strengthens the demand expectations.
Our model predicts a backlog (units and values) of 13,023 homes or $5.96 billion compared with the year-ago quarter’s figures of 14,892 units or $6.63 billion.
Margins
The bottom line of Lennar is expected to have trended south due to its increased approach toward high sales incentives, lower ASP of home deliveries, decreased revenues per square and increased land costs. The company expects the homebuilding gross margin to remain flat sequentially, indicating a 170 basis points decline year over year.
Meanwhile, Lennar expects homebuilding selling, general and administrative (SG&A) expenses, as a percentage of home sales, to be in the range of 6.7-6.8%. Our model predicts homebuilding SG&A to be 6.8% in the quarter compared with the year-ago quarter’s figure of 6.5%.
Financial Services operating earnings are expected to be approximately $140 million. Our model predicts the metric to decline 17.2% compared with $169.1 million in the year-ago quarter.
Lennar’s Price Performance & Valuation
LEN stock has exhibited a slight upward movement in the year-to-date (YTD) period. The stock has inched up 2%, underperforming the Zacks Building Products - Home Builders industry’s 6.7% growth in the same time frame. The company has underperformed a few of its peer companies like NVR, Inc. (NVR - Free Report) and PulteGroup, Inc. (PHM - Free Report) , while outperforming D.R. Horton, Inc. (DHI - Free Report) , during the same time bracket.
Image Source: Zacks Investment Research
LEN stock is trading at a discount compared with the industry and slightly higher than its median, on a forward 12-month price-to-earnings (P/E) ratio basis. The mixed signals can cloud the judgment of the investors. Thus, a thorough evaluation of the fundamentals is recommended before taking any action.
Image Source: Zacks Investment Research
Investment Thoughts on LEN Stock
Lennar ensures the best offerings for its customers, be it through sales incentives or mortgage rate buydowns. Furthermore, its focus on the asset-light, land-light model through just-in-time homesite delivery and off-balance-sheet land options along with digital marketing and construction cost-saving initiatives are not some aspects to be ignored. However, these efforts are falling short while paving through the last quarter of 2024, after resulting in significant performance growth in the last three quarters.
Optimism regarding the Fed rate cuts is surrounding the market reflecting growth in the new orders of LEN during the quarter. However, the increased mortgage rate scenario is hitting the affordability aspect for the homebuyers, despite the company’s efforts to downsize the inflationary impacts. Meanwhile, LEN is also negatively impacting its margins by engaging in strategic initiatives. The cost pressure from increased land costs, digital marketing and advertising costs, professional expenses and insurance costs are indeed taking a toll on the bottom-line performance.
Given these headwinds, including the company's underperformance compared with 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.
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Should You Buy, Hold or Fold Lennar Stock Ahead of Q4 Earnings?
Lennar Corporation (LEN - Free Report) is slated to report fourth-quarter fiscal 2024 results (ended Nov. 30) after the closing bell on Dec. 18.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, the company’s earnings and total revenues topped the Zacks Consensus Estimate by 7.7% and 1.4%, respectively. Notably, this Miami-based homebuilder surpassed earnings expectations in the trailing 22 quarters. The average surprise in the trailing four quarters can be observed in the chart below.
Image Source: Zacks Investment Research
On a year-over-year basis, fiscal third-quarter earnings inched down 0.3% while revenues grew 7.9%.
How Are Estimates Placed for LEN?
The Zacks Consensus Estimate for earnings per share has declined to $4.18 from $4.22 over the past 30 days. The estimated figure indicates a decrease of 19.2% from earnings of $5.17 per share reported in the year-ago quarter.
EPS Estimate Trend
Image Source: Zacks Investment Research
The consensus mark for revenues is pegged at $10.16 billion, indicating a 7.4% decline from the year-ago figure of $10.97 billion.
What the Zacks Model Unveils for LEN
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. This is not the case here, as you will see below.
Earnings ESP: LEN has an Earnings ESP of -4.11%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Zacks Rank: Lennar currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Likely to Shape LEN’s Q4 Results
Revenues
Lennar’s fourth-quarter top-line performance is expected to have been impacted by lower home deliveries due to increasing mortgage rate scenarios and decreased average selling price (ASP) of deliveries. Since the start of the to-be-reported quarter, the 30-year fixed mortgage rate (per Freddie Mac) has increased from 6.35% to 6.81% (as of Nov. 27). This indicates an affordability issue for the homebuyers as they struggle to make home-buying decisions while navigating through increased borrowing costs.
Synergies like the dynamic pricing model and digital marketing strategies, alongside increased incentives approach and mortgage rate buydowns, are likely to have been a support to the company’s underlying prospects. However, the current uncertainties surrounding the housing market are expected to have overshadowed its efforts to target a solid top-line performance.
LEN expects home deliveries during the quarter to range between 22,500 and 23,000 homes, depicting a fall from 23,795 homes delivered in the year-ago period. Delivery ASP is expected to be approximately $425,000, down year over year from $441,000.
For the quarter, our model predicts home sales to decline 6.5% year over year to $9.77 billion. Homebuilding revenues are expected to be $9.79 billion, down 6.9% year over year. We expect home deliveries to be down 3.4% to 22,987 units, with the ASP of the delivered units declining 3.7% to $424,850.
New Orders & Backlog
Lennar expects new orders to be in the range of 19,000-19,300 units, up from 17,366 homes reported a year ago. Our estimate for new orders is currently pegged at 19,066 homes, indicating 9.8% growth from a year ago. In an environment of affordability issues, the company offering sales incentives and mortgage rate buydowns is likely to have aided the new orders growth. Also, the optimism around the Fed rate cuts, after initiating two rate cuts within two months, strengthens the demand expectations.
Our model predicts a backlog (units and values) of 13,023 homes or $5.96 billion compared with the year-ago quarter’s figures of 14,892 units or $6.63 billion.
Margins
The bottom line of Lennar is expected to have trended south due to its increased approach toward high sales incentives, lower ASP of home deliveries, decreased revenues per square and increased land costs. The company expects the homebuilding gross margin to remain flat sequentially, indicating a 170 basis points decline year over year.
Meanwhile, Lennar expects homebuilding selling, general and administrative (SG&A) expenses, as a percentage of home sales, to be in the range of 6.7-6.8%. Our model predicts homebuilding SG&A to be 6.8% in the quarter compared with the year-ago quarter’s figure of 6.5%.
Financial Services operating earnings are expected to be approximately $140 million. Our model predicts the metric to decline 17.2% compared with $169.1 million in the year-ago quarter.
Lennar’s Price Performance & Valuation
LEN stock has exhibited a slight upward movement in the year-to-date (YTD) period. The stock has inched up 2%, underperforming the Zacks Building Products - Home Builders industry’s 6.7% growth in the same time frame. The company has underperformed a few of its peer companies like NVR, Inc. (NVR - Free Report) and PulteGroup, Inc. (PHM - Free Report) , while outperforming D.R. Horton, Inc. (DHI - Free Report) , during the same time bracket.
Image Source: Zacks Investment Research
LEN stock is trading at a discount compared with the industry and slightly higher than its median, on a forward 12-month price-to-earnings (P/E) ratio basis. The mixed signals can cloud the judgment of the investors. Thus, a thorough evaluation of the fundamentals is recommended before taking any action.
Image Source: Zacks Investment Research
Investment Thoughts on LEN Stock
Lennar ensures the best offerings for its customers, be it through sales incentives or mortgage rate buydowns. Furthermore, its focus on the asset-light, land-light model through just-in-time homesite delivery and off-balance-sheet land options along with digital marketing and construction cost-saving initiatives are not some aspects to be ignored. However, these efforts are falling short while paving through the last quarter of 2024, after resulting in significant performance growth in the last three quarters.
Optimism regarding the Fed rate cuts is surrounding the market reflecting growth in the new orders of LEN during the quarter. However, the increased mortgage rate scenario is hitting the affordability aspect for the homebuyers, despite the company’s efforts to downsize the inflationary impacts. Meanwhile, LEN is also negatively impacting its margins by engaging in strategic initiatives. The cost pressure from increased land costs, digital marketing and advertising costs, professional expenses and insurance costs are indeed taking a toll on the bottom-line performance.
Given these headwinds, including the company's underperformance compared with 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.