We maintained a Neutral recommendation on
) following appraisal of first quarter 2012 results.
Lennar Corporation reported adjusted earnings of 8 cents per
share in the first quarter of fiscal 2012 compared with an adjusted
loss of 5 cents per share in the year-ago quarter. The earnings
growth was driven by improved revenues and operating margins.
Earnings surpassed the Zacks Consensus Estimate by 60%.
Total revenue in the quarter climbed 30% year over year to
$724.9 million driven by strong performance from both the
homebuilding and financial services segments. Revenues were also
above the Zacks Consensus Estimate of $698.0 million.
Revenues from the Homebuilding segment rose 33% year over year
to $610.7 million. This was attributable to improved sale prices
and an impressive net order increase.
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. Further the Rialto segment is progressing
well and has incremental growth opportunities as the market
continues to improve.
In the interim, the homebuilding market faced a severe crisis
following the economic downturn of 2006-2007. Lennar management
believes the housing market has begun to see signs of stabilization
in fiscal 2011, particularly in the most sought after high-end
The management believes that stability in the home buying
market, combined with low interest rates and low home prices, has
increased the affordability of homes. These factors led to an
almost 5% increase in new home orders for the company in fiscal
Overall, the company is faring better than its peers by
increasing sales prices, reducing incentives, and achieving
overhead leverage on volume expansion. The average selling price
for Lennar's homes stood at $244,000 at the end of fiscal 2011
versus $243,000 in both 2009 and 2010.
Backlog (number of homes under sales contracts) at the end of
the year also climbed 35%, reflecting growing demand. Further, the
management is optimistic about the company's capacity to sustain
its growth and feels that the strong balance sheet, significant
liquidity and efficient management team will help the company to
capitalize on opportunities.
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. Home
sales for Lennar have fallen consistently from peak 2006 levels.
Prices of houses also fell continuously, driven by an oversupply of
homes in the face of depressed demand. Tough competition was
offered by existing homes, foreclosed homes and rental housing. In
addition, many home purchasing contracts are still being cancelled
due to increasing difficulty in obtaining loans for the purpose.
Though demand trends are slowly improving, a speedy recovery is
unlikely. We thus prefer to remain on the sidelines until we
witness a substantial recovery in the homebuilding market.
LENNAR CORP -A (
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