We are maintaining our Neutral recommendation on
) following appraisal of fiscal third quarter results.
Lennar's third quarter earnings per share of 34 cents soared
209% from the prior-year quarter banking on solid top-line and
margin growth. Earnings beat the Zacks Consensus Estimate by
25.9%. Total revenue climbed 34% to $1.1 billion in the quarter
as Lennar benefited from pricing and volume growth with the
housing market stabilizing. Revenues from the Homebuilding
segment rose 34% year over year to $955.8 million driven by both
smart land acquisitions and solid home sales.
Lennar has witnessed solid year-over-year growth in new home
orders, average selling prices and home closings in all the three
quarters of 2012. Margins have also been above average, despite
rising costs, driven by strong operating leverage. Lennar also
appears to be well positioned for growth in the rest of this
Lennar is considered to be a leading homebuilder in the U.S.
The company offers a diversified line of homes for first-time,
move-up and active adult homebuyers. Lennar strategically focuses
on acquiring higher-margin, well-positioned communities and
avoids the fringe or tertiary markets where price is the only
driver. The company's focus on the quality of communities instead
of quantity is benefiting its margins and new sales orders. This
is a clear differentiating factor for Lennar, giving it a
competitive advantage versus peers.
After the tough 2006-2007 period, Lennar's management believes
the housing market has begun to see signs of stabilization,
particularly in the most-desirable, high-end communities.
Management believes that stability in the home buying market
combined with low interest rates and low home prices while
renting becomes more expensive have increased the affordability
of homes. Improvement in employment and consumer confidence is
also contributing to a rise in demand for new homes. Inventory of
foreclosed homes and short sale homes is declining, thus
stabilizing prices of new homes. These factors led to new home
orders increasing by 5% in 2011 and almost 40% in the first nine
months of 2012. We believe that the company is performing better
than its peers by increasing sales prices, reducing incentives,
improving volumes and by making opportunistic land acquisitions.
Large homebuilders like Lennar, who have significant land
positions, broad geographic and product diversity, and better
capital positions, are expected to benefit the most as market
Further, the Rialto segment is progressing well and has
incremental growth opportunities as the market continues to
improve. The Rialto connections and relationships with banks and
other local sellers have made significant contributions to
Lennar's core Homebuilding business.
However, we believe that the stabilization process in the
housing market is erratic and not yet adequately broad-based. The
housing market improvement has been uneven across the country and
is concentrated in high-end communities. Therefore, we would like
to remain on the sidelines until we see a broad based housing
recovery. Lennar competes with
D.R. Horton Inc.
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