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Can Lennar (LEN) Keep the Earnings Streak Alive?

Zacks Equity Research

We expect leading national homebuilder, Lennar Corporation (LEN), to beat expectations when it reports fiscal third-quarter 2013 results on Sep 24.

Why a Likely Positive Surprise?

Our proven model shows that Lennar is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Earnings ESP), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 6.52%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Lennar carries a Zacks Rank #3 (Hold).Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Lennar’s Zacks Rank #3 (Hold) and 6.52% ESP makes us very confident about a positive earnings beat.

What is Driving the Better-Than-Expected Earnings?

Increasing demand with continued housing recovery, solid backlog position, rising home prices, strong liquidity position and strategic land acquisitions are expected to help Lennar post a positive earnings surprise in the upcoming quarter. In addition to its homebuilding operations, growth is also expected from its multiple platforms including Rialto, Mutlifamily and Financial Services. Gross margin is expected to be 24.25% for the third quarter.

In fact, Lennar has been witnessing solid year-over-year growth in new home orders, average selling prices and home closings for the past few quarters.

Other Stocks to Consider

Here are some other construction/building products companies which you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Masco Corporation (MAS), Earnings ESP of +4.00% and a Zacks Rank #2 (Buy).

Hovnanian Enterprises Inc. (HOV), Earnings ESP of +6.25% and a Zacks Rank #3 (Hold).

Taylor Morrison Home Corporation (TMHC), Earnings ESP of +2.63% and a Zacks Rank #3 (Hold).

Read the Full Research Report on LENRead the Full Research Report on TMHCRead the Full Research Report on MASRead the Full Research Report on HOVZacks Investment Research