Lennar (LEN, Financial) posted impressive results for the third quarter. The home builder posted impressive revenue and earnings. The main reason that led the home builder to post impressive financials was that the company sold more homes at higher prices. With the positive trends continuing and the future looking bright, Lennar is confident about strong growth in the future. Let us take a look at the overall underlying business of the company and the improving house building segment as well.
Impressive results and execution
Lennar’s total revenue rose 26% to $2.01 billion. Further, the net income of the company rose to $177.8 million from $120.7 million as compared to the same quarter last year. The sale of homes at higher prices also improved Lennar’s profit margins and as a result Lennar reported 47% rise in the quarterly profit.
Good improvement in the financial performance of the house builders and the selling of homes at higher prices is the clear indication of slow and steady recovery of housing market. The housing segment had been under pressure in the past, but now it seems that the demand has come back to the market. Following the growing market, Lennar is blowing all its cylinders to be profitable in the league. The progress is evident by the impressive financials in the last quarter. Further the company is looking forward to improving its profitability by focusing on various aspects.
How the road ahead looks
According to some defensive investors and analysts, the slow recovery in this housing sector isn’t profitable enough as the industry isn’t showing steep vertical acceleration. But this is a very healthy and comfortable environment for the well-capitalized national builders including Lennar. The shallow slope of recovery is likely to provide a steady backdrop for market share expansion in a fragmented industry and extended recovery duration for those who are able to participate by leveraging a strong capital base.
Lennar is pleased with the production deficit. This gives the company better chances to improve its margins as this will rise the prices for homes, and the supply remains constrained to meet the demand. Lennar believes that this shortfall will continue to define the housing market for the foreseeable future and will drive the housing recovery forward. With this improvement in the housing market, Lennar will have merry times in future.
The slow and steadily improving housing market is expected to benefit the rental market as the first-time home purchasers will find limited access to the fore sale market barred by higher down payments, very strict underwriting standards, invasive approval processes and increasing fee structures from the government and banks. This is expected to push the rental rates and valuation for rental properties up. Lennar is confident that its homebuilding business will continue to be a primary driver of its quarterly earnings and the company is geared up across all of our platforms to continue to produce industry-leading results.
It is seeing good improvement in sales with the execution of its next-gen product strategy. This led to a 24% improvement in the past reaching a total 275 sales in the third quarter. Lennar is now offering next-gen plans in 208 communities across the country and in the third quarter, the average sales price for next-gen was about 34% above the company’s average.
Lennar is seeing good growth in the first-time buyer demands. It is focusing on its home building strategy. It remains strategically positioned with both land and product to capture the first-time homebuyer demand when it is enabled by the mortgage market, and it emerges with the inevitable strong and pent-up demand.
Conclusion
Lennar is reasonable with a trailing P/E of 16.83. Its earnings are also showing decent improvement with a forward P/E of 12.68. For the next five years, the company’s earnings are expected to grow with a CAGR of 13.90%, which is impressive, and makes the stock a good long-term holding. Considering all these facts from an investment perspective, Lennar is a good investment option.
