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Lennar Strengthens Presence With Split of Northeast Division

Zacks Equity Research

Lennar Corporation LEN has been riding high on significant strategies that are driving growth. These strategies include land investment plan, dynamic pricing model, and strengthening and expanding its presence.

On that note, the company recently announced the split of the tri-state division into two separate units - Lennar's Pennsylvania/Delaware section and Lennar's New Jersey/New York division.

Lennar already has an extensive and diverse footprint in the Northeast market. In a bid to accelerate growth plans and maintain the track record of building homes, the company has divided and allocated resources into the two separate units to enrich the markets served.

Recently, it reported solid third-quarter fiscal 2019 (ended Aug 31, 2019) results. Both the top and bottom lines surpassed the Zacks Consensus Estimate, and increased 3% and 16.1%, respectively, year over year. The upside was mainly driven by higher deliveries and continued operating leverage, backed by technological efforts. Moderate home prices and declining mortgage rates stimulated both affordability and demand, thereby enhancing the company’s performance.

Moreover, it has been performing pretty well over the last few quarters. The company’s earnings surpassed the consensus mark in three of the trailing four quarters, with an average positive surprise of 9.2%. The upside is supported by the above-mentioned factors and its customer-centric marketing strategies.

During the fiscal second quarter, Lennar announced a strategic transaction with Level Homes, an Engquist Development in Raleigh, NC. The company purchased 34 under-construction homes and 29 developed sites, which are expected to be delivered over the next six years. Importantly, in view of the asset-light land strategy, Lennar has a future right to purchase approximately 1,600 finished homesites across seven communities.

Notably, the company’s focus on dynamic pricing allows it to take advantage of the strong demand trend. Based on its existing land position, operating strategy and dynamic pricing model, the company remains confident to deliver 51,000 homes by 2019-end.

Going forward, the company plans to focus more on generating significant cash flow. Since the beginning of fiscal 2020, it expects to invest more in option-based homesites than owned ones, thereby reducing risks associated with the holding period of land and cost burden.

While higher land and labor costs are threatening the bottom line of Lennar and other notable homebuilding players like KB Home KBH, Taylor Morrison Home Corporation TMHC and Meritage Homes Corporation MTH, the above-mentioned strategies are offsetting the woes.

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Meritage Corporation (MTH) : Free Stock Analysis Report
 
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Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
 
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