Homebuilder Lennar Tops Earnings Estimates, Target Price $109 in Best Case

Miami-based home construction company Lennar reported better-than-expected earnings in the first quarter, largely driven by rising housing demand due to record low mortgage rates amid the COVID-19 pandemic, sending its shares up about 2% in extended trading on Tuesday.

The first-quarter net earnings attributable to Lennar in 2021 were $1.0 billion, or $3.20 per diluted share, compared to first-quarter net earnings attributable to Lennar in 2020 of $398.5 million, or $1.27 per diluted share. Adjusted earnings per share rose over 60% year-on-year to $2.04 per share, beating Wall Street consensus estimates of $1.71 per share.

The United States’ leading homebuilders said its revenues from home sales increased 18% in the first quarter of 2021 to $4.9 billion from $4.1 billion in the first quarter of 2020. Revenues were higher primarily due to a 19% increase in the number of home deliveries, excluding unconsolidated entities.

For the second quarter of 2021, the company forecasts new orders in the range of 16,500-16,700 and deliveries between 14,200-14,400 with an average sales price of $405,000 and a gross margin on home sales of 25%. For the fiscal year 2021, Lennar forecasts deliveries between 62,000-64,000 with an average sales price of $400,000 and gross margin on home sales of 25%

Lennar shares, which surged over 35% in 2020, rose over 16% so far this year. The shares were 1.6% higher at $90.1 in extended trading on Tuesday.

Analyst Comments

“This was yet another excellent quarter, with progress made on the company’s strategic initiatives as well as robust operational performance. We expect shares to perform well tomorrow. We plan to update our estimates and outlook after the conference call on 3/17/21 at 11 AM ET,” noted Carl E. Reichardt, equity analyst at BTIG.

“Key questions: (1) How did the poor weather in Texas impact orders and closings in 1Q21, and what will be the spillover impact in 2Q21? (2) With the drop in community count higher than we expected, what is the strategy and timing around new openings? (3) What has the impact of higher interest rates been on recent weeks’ traffic and orders? (4) Can LEN speak to the magnitude and timing of the monetization of additional technology investments, and offer more color on how internal technology investment is helping to lower costs?”

Lennar Stock Price Forecast

Eleven analysts who offered stock ratings for Lennar in the last three months forecast the average price in 12 months of $97.40 with a high forecast of $109.00 and a low forecast of $90.00.

The average price target represents a 9.80% increase from the last price of $88.71. Of those 11 analysts, eight rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Several other analysts have also updated their stock outlook. Wedbush raised the price target to $102 from $88. UBS increased the price target to $83 from $77. BTIG Research raised their price target on shares to $104 from $99 and gave the stock a “buy” rating. Bank of America lifted their target price to $97 from $87. Argus lifted their target price to $100 from $88 and gave the stock a “buy” rating. ZACKS Research set the target price at $96 and gave a neutral rating on the stock.

“Shares of Lennar have outperformed the industry in the past six months. The company is benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage. Higher demand for new homes backed by declining mortgage rates and low inventory levels bodes well. Focus on the lighter land strategy to boost free cash flow will bolster the balance sheet and thereby drive returns,” said equity analysts at ZACKS Research.

“Moreover, solid first quarter 2021 guidance indicates margin expansion and deliveries to increase significantly. Also, earnings estimates for 2021 have increased over the past 30 days. However, higher land, labour and material costs are concerning. This may exert pressure on the company’s upcoming quarters as well.”

We think it is good to buy at the current level and target $109 in the long-term as 150-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

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