Home construction company Lennar Corporation (NYSE: LEN) offers real estate-related financial and investment management services. The company reported upbeat results for the second quarter of Fiscal Year 2022 (ended May 31) on the back of a robust housing market and margin expansion.
Following better-than-expected results, shares of the company rose 1.58% at the close on Tuesday.
Despite strong results, management warned about rising interest rates. Stuart Miller, Executive Chairman of Lennar, said, “While our second-quarter results demonstrate strength and excellent performance throughout the quarter, the weight of a rapid doubling of interest rates over six months, together with accelerated price appreciation, began to drive buyers in many markets to pause and reconsider. We began to see these effects after quarter-end.”
Results in Detail
Lennar reported adjusted earnings of $4.69 per share, handily beating the Street’s estimate of $3.95. The company recorded earnings of $2.95 per share in the same quarter last year.
Total revenues of $8.36 billion topped the consensus estimate of $8.12 billion and jumped 30% year-over-year.
On a segmental basis, revenues from home sales grew 33% year-over-year to $8 billion in the quarter on the back of a 14% rise in the number of home deliveries. The gross margin on home sales came in at 29.5%, up 340 basis points.
Operating earnings for the Financial Services segment decreased to $103.9 million, down 14.3% due to lower mortgage net margins.
The Multifamily segment reported operating earnings of $0.7 million in the quarter, compared with $22.4 million in the prior-year quarter.
Remarkably, Lennar reported upbeat quarterly new orders and deliveries. A total of 17,792 new orders were recorded, above analysts’ expectations of 17,429, while total deliveries were 16,549, beating the consensus estimate of 16,098.
Capital Deployment
During the second quarter, the company repurchased 4.1 million shares of its common stock for $320.6 million, at an average cost of $78.20 per share.
Outlook
Looking forward, Mr. Miller commented, “Recognizing that the Fed’s actions are still quite fluid and responsive to inflation data, the housing market will rebalance supply and demand, and interest rates and purchase price as market conditions evolve. Nevertheless, at Lennar, we are operating from a position of strength, enabling us to continue to execute on our core strategies.”
For Fiscal Q3 2022, the company expects home deliveries in the range of 17,000 and 18,500, with homebuilding gross margins anticipated between 28.5% and 29.5%.
For Fiscal 2022, Lennar expects to deliver about 68,000 homes.
Wall Street’s Take
Overall, shares of Lennar have a Moderate Buy consensus rating, based on an even split between the Buys and the Holds. The average Lennar price target of $91.40 implies 39.22% upside potential from current levels. Shares of the company have lost 32.42% over the past year.
Hedge Funds
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Lennar is currently Very Positive, as the cumulative change in holdings across all 26 hedge funds that were active in the last quarter was an increase of 776,100 shares.
Concluding Remarks
Based on the company’s strong results, decent analyst ratings, and hedge funds’ bullish stance, investors may want to add the stock to their portfolios.
