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Category: Stock Market and Lennar Corporation
Date: 3 October 2019 Stock Price: $57.82 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Lennar Corporation, a home builder in the United States that delivered 13 522 homes in the last quarter. So how do they compare to their peer KB Homes that we valued recently?
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About Lennar Corporation
We are a national homebuilder that operates in various states with deliveries of 29,394 new homes in fiscal 2017. Our company was founded as a local Miami homebuilder in 1954. We completed our initial public offering in 1971 and listed our common stock on the New York Stock Exchange in 1972. During the 1980s and 1990s, we entered and expanded operations in a number of homebuilding markets, including California, Florida and Texas, through both organic growth and acquisitions, such as Pacific Greystone Corporation in 1997. In 1997, we completed the spin-off of our then commercial real estate business, LNR Property Corporation. In 2000, we acquired U.S. Home Corporation, which expanded our operations into New Jersey, Maryland, Virginia, Minnesota and Colorado and strengthened our position in other states. From 2002 through 2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our position in several existing markets. From 2010 through 2013, we expanded our homebuilding operations into the Atlanta, Oregon, Seattle and Nashville markets. In 2017 we acquired WCI Communities, a luxury homebuilder in Florida. Through the 2018 acquisition of CalAtlantic Communities we increased our local market scale and additionally it allowed us to enter the Salt Lake City and Indianapolis markets.
Through the most recent economic downturn, we strengthened and expanded our competitive position through strategic purchases of land at favorable prices. We are currently focused on maintaining moderate growth in community count and homes sales, reducing selling, general and administrative expenses by using innovative strategies to reduce customer acquisition costs, as well as on our soft-pivot land strategy, shortening the average time between when we acquire land and when we expect to begin building homes on it.
Through the most recent economic downturn, we strengthened and expanded our competitive position through strategic purchases of land at favorable prices. We are currently focused on maintaining moderate growth in community count and homes sales, reducing selling, general and administrative expenses by using innovative strategies to reduce customer acquisition costs, as well as on our soft-pivot land strategy, shortening the average time between when we acquire land and when we expect to begin building homes on it.
Overview of Lennar Corporation's latest earnings report
- Total Revenues: $5.857 billion (up from $5.672 billion for the same quarter of the previous year
- Revenue increased by 3.26% over the last 12 months
- Homebuilding operating Expenses: $658.982 million (up from $608.754 million for the same quarter of the previous year)
- Homebuilding operating Expenses increased by 8.2% over the last 12 months
- Net income: $513.366 million (up from $453.211 million for the same quarter of the previous year)
- Diluted earnings per share: $1.59 (up from $1.37 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 318.104 million (down from 327.237 million for the same quarter of the previous year)
- Cash and cash equivalents: $795.405 million
- Cash and cash equivalents per share: $2.50
- Cash and cash equivalents makes up 4.32% of Lennar's market capital
- Stockholders equity of Lennar: $15.371 billion
- Stockholders equity per share for Lennar : $48.3
- So Lennar is trading at 1.19 times it stockholders equity per share which is well outside the expected range of between 2 and 4 times most companies tend to trade at.
Number of homes delivered per region as well as the total dollar value for the 3rd quarter of 2019 fiscal year for Lennar:
- East: 5 450 ($1 844 192 000)
- Central: 1 880 ($713 303 000)
- Texas: 2 260 ($696 904 000)
- West: 3 908 ($2 060 740 000)
- Other: 24 ($18 280 000)
- Total: 13 522 ($5 333 419 000)
Lennar Corporation's management commentary on the results and earnings guidance
Lennar Corporation (NYSE: LEN and LEN.B), one of the nation's leading homebuilders, today reported results for its third quarter ended August 31, 2019. Third quarter net earnings attributable to Lennar in 2019 were $513.4 million, or $1.59 per diluted share, compared to third quarter net earnings attributable to Lennar in 2018 of $453.2 million, or $1.37 per diluted share.
Stuart Miller, Executive Chairman of Lennar, said, "We are pleased to announce our results for the third quarter where we achieved net earnings of $513.4 million, or $1.59 per diluted share, compared to $453.2 million, or $1.37 per diluted share in the prior year. As the market continued to solidify through the third quarter, stimulating both the affordability and demand for homes, our new orders and deliveries increased 9% and 7%, respectively, from the prior year. Our homebuilding gross margin in the third quarter was 20.4%, while our SG&A of 8.3% marked an all-time, third-quarter low. We continue to believe that the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable."
Mr. Miller continued, "Our intense operational focus on our homebuilding machine, together with our strategic land program, drove solid homebuilding cash flow, which is trending towards $1.5 billion for fiscal 2019. We have paid off $1.6 billion of senior notes since the acquisition of CalAtlantic and will pay off another $600 million of senior notes in November 2019. In addition, we repurchased 6.1 million of the Company's shares in the third quarter for $296 million and 14.1 million shares for $645 million over the last twelve months. Strong cash flows, debt paydowns and stock buybacks will continue to drive greater returns on equity and capital.
"Against that backdrop, our technology initiatives have continued to contribute to our bottom-line performance, driving our SG&A leverage to historically low levels. Our financial services business has also benefitted from our technology initiatives, driving in part the segment's third quarter earnings of $78.8 million, which outperformed the high end of our earnings guidance by 44%."
Rick Beckwitt, Chief Executive Officer of Lennar, said, "We've clearly focused our attention on becoming a land lighter company. Regarding our forward-looking 40% goal of controlled homesites (versus owned), during the quarter, we made great progress by increasing our controlled homesites from 25% to 30%. We expect to continue making significant progress on this goal by entering into deals with regional and national land platforms. During the quarter, we also made progress on reducing our years owned supply of homesites from 4.5 to 4.4 years and continue to target a goal of 3.0 years. As we reach these goals, it will enable us to generate significant cash flow by reducing our land spend, driving meaningfully greater returns over time."
Jon Jaffe, President of Lennar, said, "We continue to focus on our SG&A leverage by making our homebuilding machine more efficient. We have used our technology initiatives to redefine the way we build and sell our homes resulting in enhanced leverage. We also remain laser focused on reducing our construction costs. In the third quarter, our homebuilding gross margin percentage increased sequentially 30 basis points primarily due to direct cost savings."
Mr. Miller concluded, "We remain intensely focused on our strategy of generating stronger cash flow as we look to build on the progress we made during the third quarter of paying down debt and returning capital to our shareholders. With a solid balance sheet, strong cash flow generation and continued execution of our core operating strategies, we believe that we are well positioned to continue our strong performance as we head towards the end of 2019 and into 2020."
Share Repurchases
During the first quarter of 2019, the Company's Board of Directors authorized the Company to repurchase up to the lesser of $1 billion in value, or 25 million in shares, of the Company's outstanding Class A or Class B common stock. The repurchase authorization has no expiration. Under this repurchase program, the Company repurchased 6.1 million shares of its Class A common stock for $295.9 million at an average per share price of $48.41 during the three months ended August 31, 2019 and 8.1 million shares of its Class A common stock for $394.7 million at an average per share price of $48.65 during the nine months ended August 31, 2019.
Stuart Miller, Executive Chairman of Lennar, said, "We are pleased to announce our results for the third quarter where we achieved net earnings of $513.4 million, or $1.59 per diluted share, compared to $453.2 million, or $1.37 per diluted share in the prior year. As the market continued to solidify through the third quarter, stimulating both the affordability and demand for homes, our new orders and deliveries increased 9% and 7%, respectively, from the prior year. Our homebuilding gross margin in the third quarter was 20.4%, while our SG&A of 8.3% marked an all-time, third-quarter low. We continue to believe that the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable."
Mr. Miller continued, "Our intense operational focus on our homebuilding machine, together with our strategic land program, drove solid homebuilding cash flow, which is trending towards $1.5 billion for fiscal 2019. We have paid off $1.6 billion of senior notes since the acquisition of CalAtlantic and will pay off another $600 million of senior notes in November 2019. In addition, we repurchased 6.1 million of the Company's shares in the third quarter for $296 million and 14.1 million shares for $645 million over the last twelve months. Strong cash flows, debt paydowns and stock buybacks will continue to drive greater returns on equity and capital.
"Against that backdrop, our technology initiatives have continued to contribute to our bottom-line performance, driving our SG&A leverage to historically low levels. Our financial services business has also benefitted from our technology initiatives, driving in part the segment's third quarter earnings of $78.8 million, which outperformed the high end of our earnings guidance by 44%."
Rick Beckwitt, Chief Executive Officer of Lennar, said, "We've clearly focused our attention on becoming a land lighter company. Regarding our forward-looking 40% goal of controlled homesites (versus owned), during the quarter, we made great progress by increasing our controlled homesites from 25% to 30%. We expect to continue making significant progress on this goal by entering into deals with regional and national land platforms. During the quarter, we also made progress on reducing our years owned supply of homesites from 4.5 to 4.4 years and continue to target a goal of 3.0 years. As we reach these goals, it will enable us to generate significant cash flow by reducing our land spend, driving meaningfully greater returns over time."
Jon Jaffe, President of Lennar, said, "We continue to focus on our SG&A leverage by making our homebuilding machine more efficient. We have used our technology initiatives to redefine the way we build and sell our homes resulting in enhanced leverage. We also remain laser focused on reducing our construction costs. In the third quarter, our homebuilding gross margin percentage increased sequentially 30 basis points primarily due to direct cost savings."
Mr. Miller concluded, "We remain intensely focused on our strategy of generating stronger cash flow as we look to build on the progress we made during the third quarter of paying down debt and returning capital to our shareholders. With a solid balance sheet, strong cash flow generation and continued execution of our core operating strategies, we believe that we are well positioned to continue our strong performance as we head towards the end of 2019 and into 2020."
Share Repurchases
During the first quarter of 2019, the Company's Board of Directors authorized the Company to repurchase up to the lesser of $1 billion in value, or 25 million in shares, of the Company's outstanding Class A or Class B common stock. The repurchase authorization has no expiration. Under this repurchase program, the Company repurchased 6.1 million shares of its Class A common stock for $295.9 million at an average per share price of $48.41 during the three months ended August 31, 2019 and 8.1 million shares of its Class A common stock for $394.7 million at an average per share price of $48.65 during the nine months ended August 31, 2019.
Lennar Corporation (NYSE: LEN) stock price history
The image below, obtained from Google, shows the stock price history of Lennar Corporation (NYSE: LEN) for the last 5 years. And it's been a pretty good time for Lennar stockholders. 5 years ago the stock was trading at around $39 a stock and its currently trading at $57.82 a stock. That's a healthy 48.2% returned provided by Lennar over the last 5 years. The stock of Lennar is trading at very close to its 52 week high of $57.92 and far away from its 52 week low of $37.29 which to us is a clear indication that the short term sentiment and momentum of Lennar stock is very positive.
Recent coverage of Lennar Corporation
The extract below shows the latest coverage of Lennar as obtained from TheStreet.com.
Lennar (LEN - Get Report) stock closed near its highs on Wednesday, up 3.77% to $57.82 and made new 52-week highs in the session.
Despite hitting new highs, it's been a mixed session for Lennar, after the company reported its third-quarter earnings results. Shares initially opened higher, hitting new annual highs in less than 15 minutes, then briefly turned lower and fell to negative territory before recovering. Given how the chart has set up -- both in the short term and the long term -- investors who are bullish on the homebuilder should consider sticking with the stock. Shares have momentum right now and there's little reason to bet against Lennar unless the trend starts to bend.
Earnings of $1.59 per share crushed estimates by 27 cents, while revenue of $5.86 billion easily topped expectations by $380 million, despite growing just 3.4% year-over-year. The quarter featured impressive metrics as well. It's left Lennar stock moving notably higher on what was otherwise a weak day in the stock market. Its rally didn't help to its peers, with Toll Brothers (TOL - Get Report) down about 1.5% and KB Home (KBH - Get Report) down 0.83% on Wednesday.
Read the full article here
Lennar (LEN - Get Report) stock closed near its highs on Wednesday, up 3.77% to $57.82 and made new 52-week highs in the session.
Despite hitting new highs, it's been a mixed session for Lennar, after the company reported its third-quarter earnings results. Shares initially opened higher, hitting new annual highs in less than 15 minutes, then briefly turned lower and fell to negative territory before recovering. Given how the chart has set up -- both in the short term and the long term -- investors who are bullish on the homebuilder should consider sticking with the stock. Shares have momentum right now and there's little reason to bet against Lennar unless the trend starts to bend.
Earnings of $1.59 per share crushed estimates by 27 cents, while revenue of $5.86 billion easily topped expectations by $380 million, despite growing just 3.4% year-over-year. The quarter featured impressive metrics as well. It's left Lennar stock moving notably higher on what was otherwise a weak day in the stock market. Its rally didn't help to its peers, with Toll Brothers (TOL - Get Report) down about 1.5% and KB Home (KBH - Get Report) down 0.83% on Wednesday.
Read the full article here
Lennar Corporation (NYSE: LEN) latest stock valuation
So what is Lennar Corporation (NYSE: LEN) stock worth based on the release of their latest earnings report ? Based on their earnings report our valuation models provide a target (full value) price for Lennar Corporation of $77.50 a stock. We therefore believe that the stock is undervalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $76.20. So a good entry point into Lennar stock would be at $69.80 or below. Since the price of Lennar is below our suggested entry point into the stock we rate Lennar a buy
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $76.20. So a good entry point into Lennar stock would be at $69.80 or below. Since the price of Lennar is below our suggested entry point into the stock we rate Lennar a buy