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Lennar (LEN) Hits a New 52-Week High on Q2 Earnings Beat

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Lennar Corporation (LEN - Free Report) hit a 52-week high of $55.75 on Jun 20, following its second quarter fiscal 2017 release before the opening bell. The optimism surrounding the outlook on housing for 2017 must have played a major role in pushing the stock higher.

This Zacks Rank #2 (Buy) company reported second-quarter fiscal 2017 adjusted earnings of 91 cents per share surpassing the Zacks Consensus Estimate of 78 cents by 16.7%. The company’s total revenue of $3.26 billion also came above the analysts’ expectation of $2.89 billion by almost 12.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company witnessed overall robust market improvement, which was supported by its highest quarterly new orders in 10 years, that of 8,898 homes, reflecting a 12% year-over-year increase. Home deliveries and revenues from home sales increased 15% and 18%, year over year, respectively. The company’s backlog grew 20% to $4 billion in dollar terms.

However, earnings decreased 4.2% from the year-ago level of 95 cents. Expenses related to Lennar’s acquisition of WCI Communities, Inc. hurt its second-quarter earnings. Again, gross margin on home sales declined 160 basis points to 21.5% owing to rising land and construction costs. That said, it improved 40 basis points sequentially and came in at the high-end of guidance.

The company remains confident about its previously stated guidance of 22% to 22.5% gross margins for fiscal 2017. This implies a considerable ramp up in the second half of fiscal 2017 margin performance to average out. The purchase accounting drag from the WCI acquisition is expected to diminish as the year progresses, thus improving Lennar’s homebuilding gross margin.

Lennar remains focused on continued improvement in the SG&A line from operating leverage and investments in technology. In this respect, Lennar plans to reduce SG&A expenses to the range of 9.1–9.3% in 2017. The company’s focus on overall operational efficiency drove its SG&A to historic lows both in the first quarter and now in the second quarter. The company expects fourth quarter to realize the largest leverage given its higher expected volume for the fourth quarter.

Management further reiterated its confidence in the housing market, citing a “reversion to normal” despite some recent choppy housing data of April and May.

Following Lennar’s second quarter earnings beat, major homebuilding stocks gained in the Jun 20 trading session. Shares of D.R. Horton Inc. (DHI - Free Report) inched up 1%, PulteGroup, Inc. (PHM - Free Report) added 0.3%, KB Home (KBH - Free Report) jumped 0.9% and Toll Brothers Inc. (TOL - Free Report) climbed 0.7%.
Share Price Performance

Lennar’s shares have gained 2.7% in the last month compared with the 1.1% growth for the Zacks categorized Building-Residential/Commercial industry. Diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage should drive the stock’s performance in the upcoming quarters as well.



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