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Why Is Lennar Corp. (LEN) Up 2.44% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Lennar Corp. (LEN - Free Report) . Shares have added over 2% in the past month, outperforming the market.
Will the recent positive trend continue leading up to the company's next earnings release, or is the stock 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 catalysts.
Lennar Q4 Earnings Beat on Homebuilding Strength
Lennar’s fourth-quarter fiscal 2016 adjusted earnings of $1.34 per share surpassed the Zacks Consensus Estimate of $1.27 by 5.5%. Earnings advanced 10.7% from the year-ago level of $1.21 driven by solid performance of its homebuilding business.
Total revenue of $3.376 billion beat the Zacks Consensus Estimate of $3.323 billion by 1.6%. Revenues also grew 14.6% year over year as homebuilding, financial services, Rialto and multi-family segments performed reasonably well.
Segment Details
Homebuilding Revenues: Segment revenues increased 12.3% year over year to $3 billion. Within this, home sales constituted $2.93 billion (up 11% year over year) and land sales accounted for $76.1 million (up 117.7%), driven by higher number of homes delivered and an increase in average sales price of the homes delivered.
New home orders increased 9% year over year to 6,598 in the fourth quarter of fiscal 2016. The potential value of net orders increased 12% year over year to $2.4 billion.
Home deliveries were up 7.5% year over year to 8,228 driven by higher number of homes delivered across all homebuilding segments as well as Homebuilding Central division, which now includes Homebuilding Houston.
The average selling price (ASP) of homes delivered was $358,000, up 2.6% year over year.
As of Nov 30, 2016, backlog grew 15% year over year to 7,623 homes. Potential housing revenues from backlog rose 17% year over year to $2.9 billion.
The company increased sales incentives during the quarter. Lennar’s sales incentives comprised 6.2% of home sales revenues in the fourth quarter, up 30 basis points (bps) year over year.
Margins
Gross margin on home sales declined 130 bps to 23.3% owing to rising land costs, partially offset by higher average sales price of homes delivered.
As a percentage of sales, SG&A expenses contracted 50 bps to 8.7% driven by improved operating leverage from increased number of homes delivered and benefits from increased focus on digital marketing.
Financial Services: Financial Services revenues increased 24.7% to $195.9 million in the quarter. Operating earnings at the segment were $51.4 million, up 52.1% on increased profit per transaction in mortgage and title operations.
Rialto Investments: Rialto Investments’ revenues of $81.5 million increased 33.1% year over year due to an increase in Rialto Mortgage Finance securitization revenues on higher pricing.
The segment reported operating earnings of $8 million in the quarter compared with $7.6 million a year ago.
Lennar Multi-Family: Lennar Multi-Family revenues of $92.2 million increased 84% in the reported quarter from $50.1 million in the prior-year quarter.
The segment’s operating income was $41.4 million in the fourth quarter versus $10.2 million in the year-ago quarter. The improvement was driven by the sale of a property.
Fiscal 2016 Highlights
Fiscal 2016 earnings per share were $3.93, an increase of 13.6% year over year. Total revenue was $10.9 billion, up 15.6% year over year. Homebuilding revenues improved 15.1% year over year.
Deliveries and new orders were both up 9%.
Financials
Lennar Homebuilding’s cash and cash equivalents totaled $1.1 billion as of Nov 30, 2016, up from $893.4 million as of Nov 30, 2015. Net Lennar Homebuilding debt was $3.52 billion as of Nov 30, 2016, compared with $4.13 billion as of Nov 30, 2015.
2017 Guidance
The company expects growth rate in between 7% to 10%. Gross margin is expected to be in the range of 22% to 22.5%. Lennar remains focused for continuing improvement in the SG&A line from operating leverage and its investments in technology, reducing SG&A expenses to the range of 9.1% and 9.3% for 2017.
Operating margin will likely be around 13% for 2017. ASP is expected to be between $365,000 and $370,000. Deliveries will likely be between 28,500 and 29,000.
Tax rate is estimated at around 34% and Lennar’s net community count is expected to grow approximately 7%.
Again, backlog conversion ratio is expected to be about 70% for the first quarter, between 80% and 85% for the second as well as the third quarter and over 90% for the fourth quarter.
Lennar expects 2017 free cash flow to be similar to 2016 level.
How Have Estimates Been Moving Since Then?
Following the release and in the last month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower. In the past month, the consensus estimate has shifted 8.2% lower due to these changes.
At this time, Lennar Corp.'s stock has a subpar Growth score of 'D', however its momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. Also, the magnitude of these revisions indicates a downward shift. Notably, shares of the company have a Zacks Rank #3 (Hold). We are looking for an average return from the LEN shares in the next few months.
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Why Is Lennar Corp. (LEN) Up 2.44% Since the Last Earnings Report?
A month has gone by since the last earnings report for Lennar Corp. (LEN - Free Report) . Shares have added over 2% in the past month, outperforming the market.
Will the recent positive trend continue leading up to the company's next earnings release, or is the stock 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 catalysts.
Lennar Q4 Earnings Beat on Homebuilding Strength
Lennar’s fourth-quarter fiscal 2016 adjusted earnings of $1.34 per share surpassed the Zacks Consensus Estimate of $1.27 by 5.5%. Earnings advanced 10.7% from the year-ago level of $1.21 driven by solid performance of its homebuilding business.
Total revenue of $3.376 billion beat the Zacks Consensus Estimate of $3.323 billion by 1.6%. Revenues also grew 14.6% year over year as homebuilding, financial services, Rialto and multi-family segments performed reasonably well.
Segment Details
Homebuilding Revenues: Segment revenues increased 12.3% year over year to $3 billion. Within this, home sales constituted $2.93 billion (up 11% year over year) and land sales accounted for $76.1 million (up 117.7%), driven by higher number of homes delivered and an increase in average sales price of the homes delivered.
New home orders increased 9% year over year to 6,598 in the fourth quarter of fiscal 2016. The potential value of net orders increased 12% year over year to $2.4 billion.
Home deliveries were up 7.5% year over year to 8,228 driven by higher number of homes delivered across all homebuilding segments as well as Homebuilding Central division, which now includes Homebuilding Houston.
The average selling price (ASP) of homes delivered was $358,000, up 2.6% year over year.
As of Nov 30, 2016, backlog grew 15% year over year to 7,623 homes. Potential housing revenues from backlog rose 17% year over year to $2.9 billion.
The company increased sales incentives during the quarter. Lennar’s sales incentives comprised 6.2% of home sales revenues in the fourth quarter, up 30 basis points (bps) year over year.
Margins
Gross margin on home sales declined 130 bps to 23.3% owing to rising land costs, partially offset by higher average sales price of homes delivered.
As a percentage of sales, SG&A expenses contracted 50 bps to 8.7% driven by improved operating leverage from increased number of homes delivered and benefits from increased focus on digital marketing.
Financial Services: Financial Services revenues increased 24.7% to $195.9 million in the quarter. Operating earnings at the segment were $51.4 million, up 52.1% on increased profit per transaction in mortgage and title operations.
Rialto Investments: Rialto Investments’ revenues of $81.5 million increased 33.1% year over year due to an increase in Rialto Mortgage Finance securitization revenues on higher pricing.
The segment reported operating earnings of $8 million in the quarter compared with $7.6 million a year ago.
Lennar Multi-Family: Lennar Multi-Family revenues of $92.2 million increased 84% in the reported quarter from $50.1 million in the prior-year quarter.
The segment’s operating income was $41.4 million in the fourth quarter versus $10.2 million in the year-ago quarter. The improvement was driven by the sale of a property.
Fiscal 2016 Highlights
Fiscal 2016 earnings per share were $3.93, an increase of 13.6% year over year. Total revenue was $10.9 billion, up 15.6% year over year. Homebuilding revenues improved 15.1% year over year.
Deliveries and new orders were both up 9%.
Financials
Lennar Homebuilding’s cash and cash equivalents totaled $1.1 billion as of Nov 30, 2016, up from $893.4 million as of Nov 30, 2015. Net Lennar Homebuilding debt was $3.52 billion as of Nov 30, 2016, compared with $4.13 billion as of Nov 30, 2015.
2017 Guidance
The company expects growth rate in between 7% to 10%. Gross margin is expected to be in the range of 22% to 22.5%. Lennar remains focused for continuing improvement in the SG&A line from operating leverage and its investments in technology, reducing SG&A expenses to the range of 9.1% and 9.3% for 2017.
Operating margin will likely be around 13% for 2017. ASP is expected to be between $365,000 and $370,000. Deliveries will likely be between 28,500 and 29,000.
Tax rate is estimated at around 34% and Lennar’s net community count is expected to grow approximately 7%.
Again, backlog conversion ratio is expected to be about 70% for the first quarter, between 80% and 85% for the second as well as the third quarter and over 90% for the fourth quarter.
Lennar expects 2017 free cash flow to be similar to 2016 level.
How Have Estimates Been Moving Since Then?
Following the release and in the last month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower. In the past month, the consensus estimate has shifted 8.2% lower due to these changes.
Lennar Corp. Price and Consensus
Lennar Corp. Price and Consensus | Lennar Corp. Quote
VGM Scores
At this time, Lennar Corp.'s stock has a subpar Growth score of 'D', however its momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. Also, the magnitude of these revisions indicates a downward shift. Notably, shares of the company have a Zacks Rank #3 (Hold). We are looking for an average return from the LEN shares in the next few months.