Lennar Moves Up On Strong Results And Outlook
Shares of Lennar (NYSE: LEN) have been in a downtrend due to mounting fears supply chain issues and inflation would not only cut into results but curb demand. The downtrend may be over because the FQ1 results and outlook for the year have laid those fears to rest. While there is still risk in the market and the outlook, the outlook for this year is positive and there is a chance for upside surprises. Assuming that labor and supply chain issues subside as they are expected to do, Lennar could easily top its own guidance and the analyst's consensus figures.
The analysts rate the stock although there has been no activity since the earnings were released. The trend coming into the report, however, was bearish and played a role in today’s opportunity. It is our opinion the analyst sentiment will begin to firm and add upward momentum to price action when it does. For now, the consensus rating is a weak Buy with a price target nearly 40% above the recent price action near $88.50 and there is institutional support as well The institutional activity hasn’t been remarkably heavy over the last year but the net of activity is bullish and worth more than 1% of the market cap. The total institutional ownership is above 80% and compounded by nearly 10% worth of insider holdings and the insiders have not been selling.
Solid Results Lift Lennar In Pre-Market Trading
Lennar had a strong quarter with deliveries up 2% and was supported by a double-digit increase in average selling price. The company reported $6.2 billion in revenue for a gain of 16.3% over last year and beat the consensus by a slim 17 basis points. Moving down to the margin, the company reported increases in both gross and operating margin with both also impacted by non-cash mark-market losses in some tech investments. The tech investments have been aiding the company’s growth and profitability (and its a non-cash impairment) so are not a concern. More importantly, the adjusted earnings are up significantly over last year and beat the consensus by $0.12.
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"The housing industry continues to exhibit strong demand, outweighing supply, and we are confident that we will continue to generate solid growth and enhance our current market position," said Executive Chairman Stuart Miller. "For 2022, we are increasing our guidance on both deliveries and gross margin," he highlighted.
Looking forward, the company raised its guidance for both revenue and margin but the guidance is a little mixed. The revenue guidance is only in-line with expectations but offset by widening margin and a better than expected outlook for earnings.
Lennar $2 Billion Repurchase Program Will Help Support Prices
Lennar is a healthy dividend payer with a yield near 1.7%. The payout is relatively safe with a payout ratio of 10% of this year’s earnings consensus and the balance sheet is strong. The company’s leverage and coverage ratios, as well as the FCF, are more than sufficient to sustain the payout and future increases which are also expected. The company also likes to buy back shares and just announced a fresh $2 billion allotment which is worth about 8% of the market cap.
The Technical Outlook: Lennar Is Bottoming
Price action in Lennar is bottoming and may reverse very soon. The caveat is that, for now at least, it looks like the reversal will from down to sideways and not down to up. In that scenario, we see this stock moving sideways within the range of $80 to $92 with a chance for some upside strength. If the market can get above the $92 level it may be able to advance up to the $96 to $100 range.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Lennar (LEN) | $162.24 | +0.8% | 1.23% | 11.37 | Hold | $163.88 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
