Lennar Corporation (LEN) is set to report second-quarter fiscal 2014 results on Jun 26, before the market opens. Last quarter, it posted a positive surprise of 25.0%.
We note that Lennar has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 21.7%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Strong pricing power and consistently solid margins have been driving earnings growth for Lennar for the past many quarters. Though order trends slowed down slightly in the first quarter, management is hopeful of volumes picking up in the second quarter, gaining from the spring selling season.
In the second quarter, homebuilding gross margins are expected to be slightly higher than the first, excluding the insurance benefit. However, profits in the financial services segment are expected to remain weak.
However, supply shortages and rising costs of building materials, labor and land could create some profit headwinds.
Our proven model does not conclusively show that Lennar Corporation is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: Lennar Corporation carries a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some companies in the building construction/ building products sector with a positive Earnings ESP and a favorable Zacks Rank which you may consider:
Toll Brothers, Inc. (TOL), with Earnings ESP of +2.17% and a Zack Rank #3.
United Rentals, Inc. (URI), with Earnings ESP of +11.11% and a Zacks Rank #2 (Buy).
Dycom Industries Inc. (DY), with Earnings ESP of +2.13% and a Zacks Rank #3.