Here's How Lennar (LEN) is Poised Ahead of Its Q1 Earnings

·5 min read

Lennar Corporation LEN is scheduled to report results for first-quarter fiscal 2023 (ended Feb 28) after the closing bell on Mar 14.

In the last-reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 2% but revenues missed the same by 0.7%. It is to be noted that this Miami-based homebuilder surpassed earnings expectations in the trailing 15 quarters.

On a year-over-year basis, fiscal fourth-quarter earnings and revenues grew 15% and 20.6%, respectively.

The Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings has moved down to $1.56 per share from $1.59 per share in the past 30 days. The estimated figure indicates a decrease of 42.2% from $2.70 reported in the year-ago quarter. The consensus mark for revenues is pegged at $6 billion, suggesting a 3.2% decrease from the year-ago reported figure of $6.2 billion.
Let’s see how things have shaped up for this company.

Lennar Corporation Price and EPS Surprise

Lennar Corporation Price and EPS Surprise
Lennar Corporation Price and EPS Surprise

Lennar Corporation price-eps-surprise | Lennar Corporation Quote

Factors to Note

Lennar’s fiscal first-quarter home sales are expected to have decreased from the year-ago level thanks to the ongoing challenges in the industry comprising a softer demand environment and accelerating mortgage rates. The increase in mortgage rates since March 2022 and uncertain macroeconomic conditions are playing spoilsport.

We expect home sales to decrease 0.7% year over year to $5,682.3 million in the quarter. Homebuilding revenues are expected to be $5,732.6 million, down 0.3% year over year.

On the fiscal fourth-quarter earnings call, LEN highlighted that it expects home deliveries of 12,000-13,500 units (compared with 12,538 units delivered in the prior-year quarter) at an average price of $440,000-$450,000 (suggesting a decline from $457,000 a year ago).

Meanwhile, the consensus estimate for deliveries for the to-be-reported quarter is currently pegged at 11,942 homes, indicating a decline from 12,538 units a year ago. The consensus mark for the average price is pegged at $446,000.

Lennar expects new orders in the range of 12,000-13,500, pointing to a decrease from 15,747 reported in first-quarter fiscal 2022. The weakness in the overall market might have dented the fiscal first quarter’s order pattern. The consensus estimate for new orders is currently pegged at 12,747 homes, indicating a fall of 19.1% from a year ago, owing to the softness in housing demand.

The Zacks Consensus Estimate for backlog (units and values) for the to-be-reported quarter is currently pegged at 18,924 homes or $9.52 billion compared with the year-ago quarter’s figures of 27,335 units or $13.56 billion.

Now, unprecedented supply-chain issues, increased inflation and higher land, labor and raw material costs are expected to have put pressure on fiscal first-quarter margins. The company expects the homebuilding gross margin to be nearly 21%, pointing to a decline from 26.9% a year ago.

The company has been focusing on continuous improvement of the homebuilding selling, general and administrative (SG&A) line, owing to operating leverage and investments in technology. That said, lower sales are expected to put pressure on operating leverage. The company expects SG&A expenses, as a percentage of home sales, to be nearly 8%. A year ago, the metric was recorded at 7.5%.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Lennar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is exactly the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of +1.39%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Lennar carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model, have the right combination of elements to post an earnings beat for their respective quarters to be reported.

D.R. Horton DHI has an Earnings ESP of +1.17% and carries a Zacks Rank #3.

DHI is expected to register a 52.4% decrease in earnings for the to-be-reported quarter. Notably, DHI reported better-than-expected earnings in three of the last four quarters and missing in one occasion, with the average surprise being 9.3%.

Meritage Homes Corporation MTH has an Earnings ESP of +0.82% and a Zacks Rank #3.

MTH’s earnings for the to-be-reported quarter are expected to be up 58% from the year-ago level. The company reported better-than-expected earnings in each of the last four quarters, with the average surprise being 13%.

TopBuild BLD has an Earnings ESP of +1.03% and a Zacks Rank #3.

BLD is expected to register 15.7% growth in earnings for the to-be-reported quarter. The company reported better-than-expected earnings in all the trailing four quarters, with the average surprise being 16.8%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Lennar Corporation (LEN) : Free Stock Analysis Report

D.R. Horton, Inc. (DHI) : Free Stock Analysis Report

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TopBuild Corp. (BLD) : Free Stock Analysis Report

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