IBD Stock Analysis
- Working on 110.71 buy point
- Strong EPS, revenue growth amid high home prices
- RS line lagging somewhat during stock’s consoldation
Industry Group Ranking
* Not real-time data. All data shown was captured at
12:27PM EDT on
Homebuilder Lennar Corp. (LEN) is the IBD Stock Of The Day, as new-home prices rose yet again in June as buyers snap up homes while borrowing rates are still low. LEN stock is approaching a buy point.
Last month Lennar reported Q2 earnings of $2.65 per share, a 61% jump from the year-ago quarter. Sales grew 22% to $6.4 billion. Deliveries rose 14% to 14, 493 homes. New orders jumped 32% to 17, 157, with a value of $7.6 billion. Lennar’s backlog is up 38% to 24,741 homes.
“Our second quarter homebuilding gross margin of 26.1% was the highest second quarter percentage in the company’s history, and a 450 basis point improvement over the prior year,” said Co-CEO Rick Beckwitt in a statement. “The improvement was driven by a higher-than-expected sales price per home delivered of $414,000, reflecting higher sales prices in most of our markets, partially offset by higher land and construction costs.”
Lumber prices, which spiked 300% to all-time highs during the pandemic, have fallen in recent weeks.
“If the recent lumber deflation trends continue, Lennar anticipates every 10% decline in the framing lumber index should result in $1,700 in cost savings per home,” said Wedbush analyst Jay McCanless in a June 17 note to clients. “Panel prices have not declined like framing, but if that occurs, the savings should track similarly to framing lumber.”
However, there are signs the housing market is cooling off. Census data show new-home sales dropped in June to their lowest levels since the early days of the pandemic in April 2020.
Sales of new single family homes fell 6.6% month over month in June to an annualized rate of 676,000. They dropped 19% vs. June 2020. Analysts were expecting new-home sales to grow 3.4% in June.
The median price of a newly built home in June rose 6% year over year. While that’s a sizable gain, it’s much lower than the 15%-20% annual gains seen in previous months.
“We think higher prices are causing some loss of interest/ability to buy among consumers,” McCanless said.
Mortgage rates remain extremely low.
Much of the cup base formed below the 50-day line, but has been above that key level for the past few weeks.
Lennar’s relative strength line has been going sideways since hitting an all-time high in May. The RS line, the blue line in the chart provided, tracks a stock’s performance vs. the S&P 500 index.
With a Composite Rating of 89, Lennar stock ranks No. 5 in IBD’s Building-Residential/Commercial group.
Among homebuilding supplies retailers, Home Depot (HD) dipped 0.3%. HD stock has a buy point of 345.79 from a cup base, but could be working on a handle that would offer a lower entry. Floor & Decor (FND) was up 1%. FND stock is trading near record highs after breaking out of a cup-with-handle base last week.
Lennar management still expects to close 62,000 to 64,000 units in fiscal 2021. But it raised its outlook for the average closing price to $420,000 from $400,000.
Lennar also sees gross margin improvement to 26.5% to 27% from a prior estimate of 25%.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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