On Jun 28, Zacks Investment Research upgraded Lennar Corporation (LEN) to a Zacks Rank #1 (Strong Buy) following the announcement of its quarterly results late last month.
Why the Upgrade?
Lennar reported second-quarter fiscal 2013 (ended May 31) results on Jun 25. Second quarter fiscal 2013 adjusted earnings of 43 cents per share beat the Zacks Consensus Estimate of 33 cents by 30.3%. Earnings jumped 105% from the prior-year quarter earnings of 22 cents. A double-digit growth in homebuilding revenues and solid margins boosted earnings growth.
Total revenue in the quarter grew 53.0% year over year to $1.43 billion as both the Homebuilding and Financial Services segments did significantly well. Revenues also beat the Zacks Consensus Estimate of $1.32 billion by 8.3%. Homebuilding revenues grew 59% year over year to $1.28 billion. Home closings, new orders and backlog were all up in double-digits from the year-ago period.
Lennar has been witnessing rising earnings estimates on the back of strong top line and bottom line beat in second-quarter fiscal 2013. The company benefited from the housing market recovery, which continued to boost both volume and prices for this leading national homebuilder despite recent concerns over rising interest rates. The company has been witnessing double-digit surprise for the past four quarters with an impressive average beat of 46.62%.
Despite recent increases in mortgage rates, the company witnessed increased demand in all its markets, which indicates a solid recovery in the U.S. housing market. Increased affordability due to higher rentals is boosting demand. Supply, however, remains limited due to low inventories, both for new and existing homes. Home prices have thus moved up sharply with increased market demand and limited supply.
The Zacks Consensus Estimate for fiscal 2013 increased 5.2% to $1.83 per share as most of the estimates were revised higher over the last 7 days. For fiscal 2014, more than half of the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 2.4% to $2.59 per share.
Lennar has been witnessing solid year-over-year growth in new home orders, average selling prices (ASPs) and home closings for the past few quarters. We believe that the company is performing better than its peers by increasing selling prices, improving volumes, making opportunistic land acquisitions and consistently delivering decent profit margins. In addition to its homebuilding operations, growth will also come from its multiple platforms including Rialto, Mutlifamily and Financial Services.
Other Stocks to Consider
Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI), and Taylor Morrison Home Corporation (TMHC), both carrying a Zacks Rank #1 (Strong Buy) and Ryland Group Inc. (RYL) carrying a Zacks Rank #2 (Buy).
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