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Lennar (LEN) Stock Falls Despite Earnings Beat as Trade Concerns Grow

Christopher Vargas

Lennar Corporation LEN reported earnings of $1.30 per share, beating the Zacks Consensus Estimate of $1.13, an EPS surprise of +15.04%. The company's reported earnings sent the stock up as much as 3.6% but closed down over 6% on the day. Their strong report stemmed from an improving housing market that has since recovered from 2018 who felt the weight of rising interest rates and home prices. Lennar reported that home sales increased 5% to 12,729 topping the company’s previous forecasts of between 11,700-12,000. Orders also increased 0.5% to 14, 518, which also toppled previous projections of 14,300. The homebuilding company was able to bring in revenues of 1.9% to $5.56 billion. 

In spite of these better than expected results, Lennar confirmed its full year outlook of selling around 50,000 homes. This cautious revenue guidance possibly reflects the deceleration of economic growth. Additionally, analysts have also expressed concerns about future home sales in the U.S for the remainder of 2019, as the stimulus from the Trump administration tax cuts and spending increases fades.

Growing concerns from the ongoing U.S-China trade war added to the growing worries about the housing market and homebuilders. Lennar issued a warning stating that an escalation of the trade war would lead to tariffs on Chinese goods, driving up material costs. To help offset these costs, the homebuilding company has priced in the tariffs at a $500 increase per home. Growing uncertainty would deter foreign buyers from large housing hubs such as California, which is Lennar’s most prominent revenue stream.

Lennar is currently sitting at a Zacks Rank #3 (Hold). The company has had a solid year-to-date return; shares are currently up 31%, and the stock is up 11.44% relative to the S&P 500. The company has been able to surpass our consensus estimate three out of the previous four quarters for an average earnings surprise of 67.51%. Despite these earning beats, Lennar has a Style Score of F in Growth, as our current consensus estimate is calling for a 14.65% decrease in earnings for the current fiscal year.

With the manner in which things are moving relative to the trade relations between the U.S and China, the homebuilding company must look for reassurance from the upcoming G-20 summit where President Trump and President Xi are expected to meet and restart trade talks. If the two countries can find common ground, the stock’s valuation could potentially bring investors back to Lennar, as the stock has historically been trading at a discount relative to its respective industry the past three years.


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