Resilient demand sparked by a post-pandemic housing shortage has been the driving force behind the robust stock performance of many homebuilders recently, among which Lennar Corporation LEN stands prominently.
Lennar managed to surpass expectations in its fiscal second quarter results released after the market closed on Monday. However, despite this positive news, the stock plummeted by -5% in today’s trading session, possibly due to profit-taking triggered by lower-than-expected EPS guidance. Consequently, the stock now finds itself trading -13% below its 52-week high of $172 reached in March.
Review of Q2 Performance
During the second quarter, Lennar delivered around 19,700 homes and sold a total of 21,300 homes. This drove Q2 sales to $8.76 billion, surpassing estimates by 2% and marking an 8% rise from the previous year’s $8.04 billion. On the bottom line, Q2 EPS of $3.38 outperformed
expectations by 5% and surged by 15% compared to $2.94 per share in the same period last year.
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Earnings Guidance
Lennar anticipates Q3 deliveries to range between 20,500 and 21,000 homes and projects a 10% increase in total home deliveries this year to approximately 80,000 with a margin of slightly over 23%. Furthermore, the company plans to repurchase $2 billion worth of stock by 2024,
capitalizing on its robust cash flow.
However, Q3 EPS is forecasted to fall in the range of $3.50-$3.65, below the current Zacks Consensus of $3.78 per share. Looking ahead, Zacks estimates indicate a 1% increase in Lennar’s annual earnings for fiscal 2024, with projections pointing to a further 12% rise in FY25, reaching $16.25 per share.
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Recent Stock Performance
Despite today’s decline, Lennar’s stock has remained relatively flat year-to-date but has posted a 24% increase over the past year, aligning with the S&P 500 but trailing the Zacks Building Products-Home Builders Market’s 32%. Notable industry peers such as Toll Brothers TOL at +60% and PulteGroup PHM at +51% have outperformed Lennar.
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Valuation Comparison
In terms of P/E valuation, Lennar’s 10.8X forward earnings multiple stands considerably lower than the S&P 500’s 22.9X. The company’s valuation aligns roughly with the industry average, yet it’s noteworthy that Toll Brothers and PulteGroup trade at marked discounts, with multiples
at 8.5X and 8.8X, respectively.
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In Conclusion
Lennar Corporation’s current stock is tagged with a Zacks Rank #3 (Hold). While the company’s long-term potential remains appealing, the extent of future upside hinges largely on the trajectory of earnings estimate revisions post its Q2 financials. An unfortunate setback may be in store given the current quarter’s EPS guidance
falling short of estimates.
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