The homebuilding industry, buoyed by a post-pandemic housing shortage, has seen remarkable growth, with Lennar Corporation LEN emerging as a standout player among its peers.
Following a robust fiscal second-quarter performance that surpassed expectations, Lennar’s stock took a -5% hit in today’s trading, possibly due to profit-taking in light of weaker-than-anticipated EPS guidance. As the stock now sits at a -13% discount from its peak of $172 in March, investors ponder whether this dip presents a buying opportunity.
A Look Back at Q2
During the second quarter, Lennar delivered approximately 19,700 homes and sold a total of 21,300, achieving sales of $8.76 billion. This figure exceeded estimates by 2% and marked an 8% increase from the comparable quarter. On the bottom line, the company reported an EPS of $3.38, beating expectations by 5% and marking a 15% jump from a year ago.
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Future Projections
Lennar anticipates delivering between 20,500 to 21,000 homes in Q3, with total home deliveries expected to rise 10% this year to around 80,000 homes at a margin of slightly over 23%. Additionally, the company plans a $2 billion share repurchase in 2024 based on its strong cash flow.
Despite these positive numbers, Q3 EPS projections of $3.50-$3.65 fell short of the current Zacks Consensus estimate of $3.78 per share. Looking forward, Zacks estimates a 1% increase in Lennar’s annual earnings for fiscal 2024, with a projected 12% rise in FY25 to $16.25 per share.
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Recent Market Trends
Following today’s downturn, Lennar’s stock has remained relatively flat year-to-date but boasts a +24% increase over the past year. This performance aligns with the S&P 500 but falls short of the Building Products-Home Builders Market’s +32%, with standout performers Toll Brothers TOL at +60% and PulteGroup PHM at +51%.
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Valuation Analysis
In terms of P/E valuation, Lennar’s forward earnings multiple of 10.8X stands below the S&P 500’s 22.9X, remaining on par with its industry average. Notably, Toll Brothers and PulteGroup trade at significant discounts of 8.5X and 8.8X, respectively.
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Final Thoughts
Lennar Corporation currently holds a Zacks Rank #3 (Hold). While the company’s long-term potential remains appealing, further upside hinges on the trajectory of earnings estimate revisions post the Q2 report. The recent shortfall in EPS guidance for the current quarter may lead to downward revisions, shaping Lennar’s near-term trajectory.
