This is no time to buy Lennar, but the time will come – MarketBeat

Lennar Corporation (NYSE: LEN ) have a lineup is at the higher end of the housing spectrum. The balance sheet is in the best shape it has been in for many years. The problem is not the supply-demand situation, because it still benefits all homebuilders. The problem lies in the near to mid-term outlook, which is deteriorating rapidly.

The sudden rise in interest rates, the persistent quality of inflation and the impact on the housing market have been profound. While Q4 and FY 2022 were solid years for Lennar, KB Home (NYSE: KBH), DR Horton Inc. (NYSE: DHI) and others, the guidance points to a sharp decline in revenues and earnings in 2023.

“Our sales volume and pricing have clearly been impacted by rising interest rates, but there remains a significant national shortage of housing, particularly workforce housing, and there remains demand as we navigate the rebalancing of price and interest rates,” said executive chairman Stuart Miller.

Lennar falls for weak guidance

Lennar’s results for the 4th quarter prove both the strength of demand in the housing market and the effect of rising interest rates. The company’s revenue rose 21% year-over-year (YOY) to $10.17 billion, beating the consensus, but guidance is weak. As for Q4, sales were driven by a 13% increase in deliveries and an 8% increase in house prices, which also led to strong results on the bottom line. Margins declined on both the gross and residential levels, but less than expected, leading to double-digit adjusted earnings and adjusted EPS of 16% including the help of share buybacks. $5.02 in adjusted earnings beat $0.12, but that’s where the strength ends.

Looking forward, none of the news is good. The company reports a 15% decline in new orders and expects a similar rate in the first quarter. The backlog is down at 21% driven by an increase in cancellations running at 26% compared to just 12% the year before. The order backlog and new orders are even more worrying because both are combined with price declines that have net values ​​down 24% and nearly 25% respectively. In terms of guidance, the company expects Q1 and FY2023 deliveries below analyst consensus, and there is a high risk of underperformance so the stock moves lower.

Analyst sentiment for Lennar strengthened

The analyst mood at Lennar is tightening, but take this with a grain of salt. The rating of 16 analysts is a very weak “moderate buy” and up a couple of upgrades that came before the F2023 guidance was released. The price target is also up, but only involves 10% of the upside, and there are other risks as well. The stock has been pushed down by the institutions that increased pressure in the first two months of December 2022. In this light, the stock may see some upward movement, but the gains are likely to be limited to the $92 area.

The chart looked bullish in the report, but the best that can be said now is that the stock is range bound. The top of the range is near $92, and that could hold until the outlook for homebuilding sales improves. The latest reading on the NAHB Home Builder Sentiment Index doesn’t suggest it will be anytime soon. Based on what the FOMC just said, that time may not come until well into 2024, if not later. Between now and then there will be ample opportunity to buy into this name.

This is not the time to buy Lennar, but the time will come

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