Lennar Stock Struggles For Direction After Earnings Blowout

Lennar Is Poised For Gains, When Is The Question 

The housing and home building industry is the kind of market that we love and Lennar’s (NYSE: LEN) FQ1 results are a great example of why. The company’s business is growing, it’s beating the consensus estimates, and it is accelerating which is a win/win for investors no matter how you look at it. In this environment not only will the market trend higher to maintain fair-value relative to earnings but the analyst’s community will have to respond as well. If there is anything that can get a stock going it is a wave of analysts’ upgrades, price target hikes, and recommendations to buy. 

Lennar Beats On Top And Bottom Line With Earnings Stunner. 

Lennar not only beat on both the top and bottom lines but produced earnings leverage that can only be described as stunning. The adjusted $2.04 beat by $0.30 which isn’t all that shocking but the $3.20 in GAAP earnings beat by $1.46 or nearly 84%. The earnings come on $5.33 billion in net revenue which is itself a great figure. The FQ1 revenue is up 18.2% from last year and bettered the consensus by 230 basis points. 

Digging into the data the company delivered 12314 homes for the quarter which is a bit shy of the consensus but offset by higher prices, cost control, and leveraging of fixed costs. Turning to new orders and backlog more evidence of the company’s increasing leverage emerges that should drive profits even higher later in the year. The total number of new orders rose 26% to 15,570 and outpace the number of quarterly deliveries and drive an increase in backlogs. The total value of new orders rose by 31% outpacing the increase in orders. As for the backlog, the company’s backlog increased by 25%, 32% in dollar value, which also outpace the Q1 results. 

Company execs were able to offer some guidance due to the Q1 strength that we feel could still be cautious. The company is expecting deliveries to fall a little short of the consensus in the Q2 period but is upping guidance for the full year. For the year, Lennar is expecting to see deliveries in the range of 62,000 to 64,000 which assumes ramping construction and increased deliveries in the second half of the year. The most important factor is that margins are expected to widen further to 25% or 500 basis points better than previously guided.

Lennar Dividend History And Health Are Impressive 

Lennar isn’t much of a payer in terms of its current yield which is only about 1.15%. What we find attractive is the dividend health and the outlook for distribution growth which is quite robust. The company began increasing the distribution about three years ago and is still paying out less than 10% of its earnings in a rising EPS environment. The balance sheet is strong as well so there is little strain on cash flow and the distribution CAGR is quite high. The last two increases have run in the range of 35% and we see no reason why there won’t be another just like it later this year. 

The Technical Outlook: Lennar Is Range-Bound 

Shares of Lennar staged a solid rebound from the 2020 lows but appears to be rangebound now. Although the data coming out of the company itself is great the latest housing data suggests otherwise. The latest read on housing permits and starts has both figures down 10% from last month and show a slowing in the market. That said, shares of Lennar may move down to retest the bottom of the range near $80 but the move would present a buying opportunity in our opinion. And that’s if price action falls below the short-term 30-day moving average.