In the grand scheme of things, it shouldn’t be any great surprise that homebuilder Lennar Corporation (LEN) handily topped its earnings estimates for last quarter, sending Lennar stock higher by more than 4% as result.
Rivals and peers Toll Brothers (TOL) and KB Home (KBH) also both recently reported better-than-expected earnings figures for their previous quarters, and a couple of different organizations both served up some encouraging housing data just this week.
Yet, the most encouraging aspect of the Lennar earnings report for current or would-be LEN shareholders is one that’s largely been overlooked thus far. There may be a lot more of this impressive growth for the foreseeable future.
Lennar Stock Earnings Results for Q2
The Lennar earnings numbers for second quarter speak for themselves. The homebuilder earned 79 cents per share of Lennar stock on revenue of $2.4 billion. Analysts were only looking for a profit of 64 cents per share and a top line of $2 billion.
Better yet, both the top and bottom lines for Q2 of 2015 left last year’s numbers in the dust. Lennar Corporation only generated a profit of 61 cents per share of LEN in the comparable quarter a year earlier, on $1.8 billion worth of revenue.
Those results live nothing to complain about.
CEO Stuart Miller commented on the results:
“The homebuilding market continued its steady improvement throughout our second quarter. Driven by higher wages and employment, reasonable affordability levels, supply shortages and favorable monthly payment comparisons to rentals, the homebuilding market is well positioned for multi-year growth ahead.”
He may not have known how right he was about the homebuilding market being positioned for multi-year growth.
Quite a Tailwind for Lennar Stock
As encouraging as Wednesday’s report was for anyone who owns Lennar stock for the long haul, even more encouraging was data posted by the National Association of Realtors and the Department of Commerce earlier this week.
Click to Enlarge In simplest terms, home-buying is strong and picking up steam, and simultaneously, there just aren’t enough houses to meet current levels of demand. Tuesday’s figures from the Department of Commerce verify this premise. The agency reported that despite near-record low inventories of new houses, new-home sales soared to an annual pace of 546,000 last month. Prices continued to rise too, confirming that buyers are ready, willing, and able.
And no, the strength being observed from the new-home industry isn’t just a mere offset of weakness in existing home sales. Existing home sales reached a multi-year record annual pace of 5.3 million in May, again with relatively limited inventory of available homes.
Click to EnlargeAlthough May’s home price data isn’t yet available from the FHFA, given the price trend in place right now, odds are good we’ll see average sale prices move higher again on this front as well.
The industry undertow bodes well for Lennar stock, though no less so for others like the aforementioned Toll Brothers and KB Home.
Bottom Line for Lennar Stock
Though the current snapshot is clearly compelling, the naysayers will be quick to point out that the past doesn’t predict the future. And truth be told, those detractors are right — things can change in an instant.
On the other hand, what these same naysayers may not realize about LEN is it actually does have a rather encouraging foreseeable future, largely secured right now.
It may have been buried deep in the rhetoric that was packaged along with the Lennar earnings news release this morning, but it was there for those who looking — Lennar is now sitting on a backlog of $2.9 billion worth of homes to build, which is 23% stronger than the backlog on the books as of this time last year. That’s revenue ready to book upon completion of the underlying projects, and doesn’t count the business the company is going to win between now and then.
In other words, Lennar stock really is as well-positioned as Stuart Miller described. And at a forward-looking price-to-earnings ratio of 14.2 (not to mention the company’s habit of topping estimates), now may be a good time to wade in despite today’s 4% advance from LEN.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
