Lennar (LEN) Up 14.1% Since Last Earnings Report: Can That Continue?

It’s been about a month since Lennar’s (LEN) last earnings report, and shares are up about 14.1% in that time, outperforming the S&P 500.

Will the recent positive trend continue into its next earnings release, or is Lennar headed for a pullback? Before we dive into how investors and analysts have reacted recently, let’s take a quick look at the latest earnings report to better understand the important factors.

Lennar Q2 Earnings, Revenue Beat Estimates, Orders Up

Lennar reported second-quarter fiscal 2024 earnings and revenues surpassed the Zacks Consensus Estimate. Both top and bottom lines rose year-over-year, given the company’s focus on maintaining steady production momentum to drive sales momentum. Lennar strategically leveraged pricing, incentives, marketing spend, and dynamic pricing insights to ensure steady sales volume despite interest rate fluctuations.

Investor sentiment may have been hurt by lower gross margin expectations and higher sales, general and administrative (SG&A) guidance for the third quarter of fiscal 2024.

Quarterly numbers

Lennar reported quarterly earnings per share (EPS) of $3.38, topping the Zacks consensus estimate of $3.20 by 5.6% and increasing 15% year over year.

Revenue of $8.8 billion topped the consensus of $8.6 billion by 2.2% and rose 9% year over year from $8.1 billion.

Segment Details

Building a house: Revenues for this segment totaled $8.38 billion, exceeding our expectations of $8.2 billion, up 9.3% from the same quarter last year. Within the Residential Construction business, home sales contributed $8.36 billion to total revenues, up 9.4% from a year ago. Land sales contributed $13.6 million, down from $16.3 million in the same quarter last year. The Other Residential Construction business contributed $9.7 million to Residential Construction revenues, down from $17.1 million a year ago.

Home deliveries in the reported quarter increased 15% from a year earlier to 19,690 units. This was better than our forecast of 19,200 units for the quarter. The average selling price (ASP) of homes delivered was $426,000, down 5% from a year earlier due to market pricing through increased use of incentives and product mix.

New orders rose 19% from the same quarter last year to 21,293 homes. Potential net order value also rose 12.5% ​​from a year earlier to $9.2 billion. Backlogs at the end of the fiscal second quarter fell 11.6% from a year earlier to 17,873 homes. Potential real estate revenue from backlogs fell 13.6% from a year earlier to $8.2 billion.

Gross margin on home sales was 22.6% in the quarter, up 10 basis points (bps) year over year. The increase was driven by a continued focus on reducing construction costs. SG&A expenses — as a percentage of home sales — increased 80 bps to 7.5% due to an increase in broker usage due to current market conditions and an increase in digital marketing, professional services and insurance costs.

Financial services: Segment revenue increased year over year to $281.7 million from $223 million for the reported quarter. Operating profit for the quarter increased to $147 million from $112.6 million a year earlier.

Lennar Multifamily: Revenue of $99.5 million for the segment was down from $151.7 million in the prior-year quarter. The segment reported an operating loss of $20.5 million for the quarter, widening the prior-year loss of $8.2 million.

Lennar Other: Segment revenues totaled $3.3 million, down from $0.4 million a year earlier. Operating loss was $29 million for the quarter, compared to $18.4 million in the comparable period of fiscal 2023.

The story continues

Financial

At the end of the fiscal second quarter, Lennar had cash and cash equivalents for homebuilding of $3.6 billion, down from $6.27 billion at the end of fiscal 2023. Lennar has no outstanding borrowings under its $2.2 billion revolving credit line, providing $5.8 billion in liquidity. Total homebuilding debt was $2.24 billion at the end of the fiscal second quarter, down from $2.82 billion at the end of fiscal 2023. Homebuilding debt to equity was 7.7% at the end of the fiscal second quarter, down from 9.6% at the end of fiscal 2023.

During the second fiscal quarter, Lennar repurchased 3.8 million shares for $603 million.

Conductivity

In the third quarter of fiscal 2024, the company expects deliveries of between 20,500 and 21,000 homes, up from 18,559 homes delivered during the same period a year ago. The company expects the average selling price of units delivered to be between $420,000 and $425,000, down from the average selling price of $448,000 reported a year ago. Gross margin on home sales is expected to be around 23%. SG&A as a percentage of home sales is likely to be in the range of 7.3% to 7.5% for the quarter. In the prior year, gross margin was 24.4% and SG&A was 7%.

New orders are likely to be in the range of 20,500-21,000 units, compared with 19,666 homes reported a year earlier.

Financial Services’ operating profit for the fiscal third quarter is expected to be around $135 million to $140 million.

How have estimates changed since then?

Over the past month, investors have witnessed a downward trend in estimate revisions.

VGM Results

Lennar currently has a solid Growth Score of B, although it falls far short in terms of its Momentum Score, with a grade of D. However, the stock has been given a grade of B on the Value side, which puts it in the second quintile of this investment strategy.

Overall, the stock has a Composite VGM Score of B. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

The stock is trending lower, and the magnitude of these revisions indicates a downward shift. It is worth noting that Lennar has a Zacks Rank #3 (Hold). We expect the stock to deliver consistent returns over the next few months.

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