The trend in homebuilders is still hot, and that's a point that Lennar Corp. (NYSE:LEN) is taking to the bank. We've seen big results come in from other homebuilders like Toll Brothers (NYSE:TOL) as more people look for a new place to call home in an environment where we as a country have never spent so much time therein. This rising tide seems to be lifting at least most of the boats in the field, and with a substantial backlog in play, it's likely the tide will keep coming in for some time to come.
Another Solid Quarter for Homebuilders
The numbers out of Lennar proved to be a welcome boost for the company and asserted that the homebuilding sector is doing better than most even dared hope. The company turned in earnings of $2.04 per share, which readily beat estimates from Refinitiv and FactSet that were looking for $1.71 per share. Revenue also delivered a beat, as it was up 18% to reach $5.33 billion.
The biggest winner here was overall order rates, which were up 25.8% to fuel gains in the total number of homes sold, which reached 12,314 total, an increase of 19.3% in its own right. The only problem coming up for Lennar is that it won't be able to match expectations on future building, which are already larger than those turned in in the last quarter. The company expects to deliver between 14,200 and 14,400 homes this quarter, which is appreciably short of the expected 15,067 even in the most optimistic projections.
Analysts See a Slipping Bull in Lennar
Meanwhile, analyst sentiment—based on our latest research—has been bullish for months and remains such, though sentiment has been slipping for the last six months. The company has held a consensus rating of “buy” for that entire time, though the ratios comprising it have been sliding somewhat.
Six months ago, the company had six “hold” ratings and 12 “buy” ratings, making it a pretty clear “buy.” That slipped a bit three months ago as “hold” went to eight, but “buy” stayed at 12. A month ago, “hold” again increased to nine, while “buy” slipped to 11. Today, we now have 10 “hold” ratings and 11 “buy” ratings, pushing us increasingly toward “hold.”
The price target has been trending steadily upward over the last year; this time last year, price targets were around the $42 range, but are currently averaging more than twice that. There's also a pronounced range in the target, with the high currently at $104 and the low at $47. While 2021 has been comparatively quiet for price target modifications on Lennar, December 2020 featured several upward hikes in the price target, as analysts from Smith Barney to Bank of America all hiked their previous targets.
Improving the Sales Proposition
What we've seen out of Lennar so far is great, but we all know there's an expiration date attached to this news. Eventually, the market will shift in one direction, or possibly multiple directions, and the homebuilding frenzy will die out. Interest rates will increase—we're already starting to see that take place in mortgage lending circles—the backlog of orders will dry up, and eventually, everyone who wants or can afford a new home will have one. That's going to leave companies like Lennar in a bad position going forward; once this market has been fully captured, where do we go from there?
Lennar, however, is working to answer this question, and that's great news for investors. Last week, word emerged about Lennar's new partnership effort with Sunnova Energy International (NYSE:NOVA). The move called for Lennar to sell its residential solar operation, SunStreet, to Sunnova, in exchange for an ownership stake in Sunnova. Now, Sunnova is Lennar's exclusive provider of solar and storage services throughout the US, making Lennar that much more a green operation.
By being better able to offer solar power access in recently-built homes, Lennar makes an excellent case to potential homeowners. In places like Texas and California, which have recently seen grid power falter when it was needed most, being able to offer the ability to generate power at home as a feature will almost certainly drive interest. That's going to make at least some homebuyers turn to Lennar. Even after the housing boom dies down, and it has to eventually, Lennar may still be able to keep its revenue coming in by retrofitting current homes to accommodate solar systems, which will likely be attractive prospects going forward.
The homebuilding binge will die out eventually. With it will go the revenues of many big homebuilding operations. Lennar, however, seems to be looking toward tomorrow, and that's always a welcome stance for anyone planning an investment herein.
Companies in This Article:
