Lennar (LEN) — Real Estate Construction Stock Investing Analysis

Earnings, Bulls Say vs. Bears Say

📖 Business Description

Based in Miami, Lennar is the second-largest public homebuilder in the United States (behind D.R. Horton). Lennar’s main products include newly constructed homes targeting first-time, move-up, active adult (Real Estate Construction), and mortgage financing (Financial Services).

📢 Latest Financial Results on 9/14/23

🌱 Revenue: $8.7B, -2.7% y/y

💰 Operating Income: $1.47B, or 16.9% of total revenue

🔮 Next Quarter Revenue Outlook: ~$9.9B, -6.6% y/y

🔸 Deliveries: 18,559 homes, +8% y/y

🔸 Average Sales Prices：$448,000, -8.8% y/y

🔸 New Orders: 19,666 homes, +37% y/y

🔸 New Orders Value: $8.6B, +30% y/y

🔸 Gross Margin: 24.4%, down from 29.2% y/y

🔸 Stock Buyback: $366M

💡 CEO: “Short housing supply, absorbed by strong primary and pent-up demand, continued to define a strong sales environment. Homebuilders continued to use incentives, including buy-downs, to offset rising interest rates and tighter capital.”

📈 Bulls Say

🔸 Financials: The company is financially healthy and owns adequate lands for the foreseeable future.

🔸 Macroeconomic Environment: Most individuals are reluctant to sell properties with low-interest rate mortgages. This keeps the housing supply low. Developers like Lennar tend to offer more incentives to offset the impact of higher interest rates and attract more buyers. As a result, the demand for new houses is vital.

🔸 Catalysts: 1. Berkshire Hathaway’s latest 13F filing reveals Warren Buffett has increased holdings in residential construction stocks such as D.R. Horton and Lennar. (8/14/23) 2. Lennar’s new orders increased by 37% this quarter, with backlogged order values reaching $9.9 billion. 3. First-time buyers will be a key driver of future housing demand, and these buyers have always been Lennar’s targeted customers.

📉 Bears Say

🔸 Revenue: The company’s revenue has decreased, down 2.7% year-on-year; the forecast for the next quarter is down 6.6%. Limited upside in housing prices in the short term.

🔸 Profitability: The company’s gross profit margin has decreased nearly 5% y/y. Inflation also increased the cost of land, materials, and labor. The company is also aggressively using incentives/discounts to attract buyers. This means profitability is difficult to improve in the short term.

🔸 Macroeconomic Environment: The high-rate environment reduces people’s willingness to purchase new homes. Declining employment rates and substantial student loans also restrict young people’s ability to buy homes.

📝 Conclusion: Neutral

The demand for new homes from the millennials will last long, but the current macro environment will also limit the company’s development.

⚠️ This article does not constitute investment advice. The author strives for accurate information. If there are any issues, feedback is welcome.