S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
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Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
In Senegal's capital, Nicaragua is a hot ticket among travel agents as migrants try to reach US
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
In Senegal's capital, Nicaragua is a hot ticket among travel agents as migrants try to reach US
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
In Senegal's capital, Nicaragua is a hot ticket among travel agents as migrants try to reach US
Critical asset just had biggest fall on record (Ad)
Norway's hospitalized king gets a pacemaker in Malaysia after falling ill during vacation
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
Critical asset just had biggest fall on record (Ad)
What to watch for as China's major political meeting of the year gets underway
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot

Lennar Raises The Roof With Q1 Results: Don’t Chase It Higher

Lennar stock price

Key Points

  • Lennar moved higher on solid results but don't chase this stock higher. 
  • A looming cliff is approaching the home building sector. 
  • Revenue is up this quarter but the decline will begin in Q2.
  • 5 stocks we like better than Lennar

Lennar NYSE: LEN raised the roof with Q1 results, but investors are urged not to chase this market higher. The results, while good, confirm news from other homebuilders that suggest a looming cliff is fast approaching the sector. While new orders are still outpacing deliveries, the number of new orders is declining, the cancellation rate is double the previous year, and backlogs are falling. Backlogs will sustain business growth for the next quarter or two; if conditions worsen, the growth outlook will quickly evaporate, and falling home prices aren’t helping.

Lennar reports average selling price is down about 2% for the quarter and 8% on a forward-looking basis. This is cutting into the margin, hurting earnings, and is a factor that could cap gains very quickly. 

And the analysts aren’t helping the situation. Marketbeat.com’s analyst's tracking tools haven’t picked up any new commentaries yet, but the price target and sentiment trend are downward. The analysts still have the stock pegged at a firm Hold, but this is down from last year’s Buy with a price target that assumes the stock is fairly valued at current levels.

The latest activity has the price target firmed, but this is likely a near-term phenomenon that will soon revert to the trend. The homebuilders aren’t bad stocks, just low-yielding dividend payers with a sketchy outlook for growth. 

Lennar Rises On Mixed Quarter 

Lennar had a better-than-expected quarter, but this is relative to the analyst's expectations and not prior results. The revenue of $6.49 billion is up 4.7% from last year and beat by $0.5 billion, but price reductions and inventory-clearing activity drive sales. The company reports a 9% increase in deliveries offset by a decline in the selling price, which is expected to accelerate over the year. The price reduction led to a decline in the margin, which is also expected to accelerate, but there is some good news here.

The gross margin fell by 570 basis points for a net decline of 560 bps which was less than expected. This left the adjusted earnings at $2.12 and $0.57 better than expected but more than 20% lower than last year. It is good news but not a catalyst to sustain higher share prices. 


The guidance calls for sequential growth throughout the year, but results will be weaker than last year. The company’s delivery guidance is -0.6% lower than last year at the top end of the range, coupled with an expectation for lower prices. The Q2 average selling price is expected to be $435,000 to $445,000, 66 bps lower than Q1 at the high end. Assuming the best, revenue will begin contracting by low single-digits in Q2, and the contraction will accelerate into the end of the year.

Lennar Capital Returns Are Safe … For Now 

Lennar doesn’t pay a robust dividend, the yield is about 1.5% at current share prices, and it has been lifted in recent years due to windfall profits in the sector. The payout ratio is only 8.5% of earnings, so it looks relatively safe, but there is a risk of a cut. The FY EPS consensus target is sufficient to sustain the payout, but it is down about 50% from the previous year, and the outlook for earnings isn’t all that firm. 

The chart isn’t all that favorable, either. The stock has pulled back from an all-time high once this year already, and that level is a target for strong resistance. The market is up in pre-opening action, but the upside potential is limited, with more resistance targets than one. The closest hurdle is $104, which may be tough to cross. The institutions turned bearish in Q4 2022, and the activity quarter-to-date aligns with that trend. 

→ Critical asset just had biggest fall on record (From Stansberry Research) (Ad)

Should you invest $1,000 in Lennar right now?

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
SPDR S&P Homebuilders ETF (XHB)N/A$104.39+1.3%0.61%7.34N/AN/A
Lennar (LEN)
4.5504 of 5 stars
$161.48+1.9%1.24%11.74Moderate Buy$140.53
Compare These Stocks  Add These Stocks to My Watchlist 

Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat 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. 


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