Despite reporting better-than-expected fourth-quarter 2013
results, we maintained a Neutral recommendation on
), on Feb 5, due to slowing order trends.
Why the Reiteration?
Though Lennar announced strong fiscal fourth-quarter results
on Dec 18, it witnessed a slowdown in order growth.
Lennar beat the Zacks Consensus Estimate for both earnings and
revenues in the fourth quarter on the back of strong momentum in
the housing market. Adjusted earnings of 73 cents per share grew
30.4% year over year driven by growth in both revenues and
However, even though homebuilding revenues grew around 50% in
the quarter, net order pace slowed down. Though new home order
grew 13% year over year, it declined sequentially due to slowing
The recent spike in mortgage rates, rising home prices and the
political uncertainty in Washington has slowed order pace and
However, management pointed out that it saw sequential
improvement in order trends throughout the fourth quarter with
November being the strongest month in the quarter. As a result,
the company expects a strong spring selling season for fiscal
Management seemed confident of seeing strong demand in future
quarters as buyers adjust to the rising prices and interest rates
and return to the market. Supply shortages, both of new
single-family and multi-family homes, and pent-up demand paved
the way for the housing recovery.
However, though profits are expected to continue to improve in
2014, it is noteworthy that Lennar expects flattish gross margins
in the year, unlike the substantial improvement seen in the past
two fiscal years. Gross margin is expected to average about 25%
in 2014, almost flat with the 2013 levels.
Other Stocks to Consider
Lennar carries aZacks Rank #3 (Hold). Better ranked
D.R. Horton, Inc
MRV Engenharia e Participa
Standard Pacific Corp.
). While D.R. Horton and MRV Engenhariasport a Zacks Rank #1
(Strong Buy), Standard Pacific carries a Zacks Rank #2 (Buy).
D R HORTON INC (DHI): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
MRV ENGENHARIA (MRVNY): Get Free Report
STANDARD PAC (SPF): Free Stock Analysis
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