Building It Better

Nidhi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Lennar Corp (NYSE: LEN) engages itself in homebuilding, financial services, and real estate businesses in the United States. It builds affordable, move-up, and retirement homes in communities that cater to almost any lifestyle – urban, golf course, active adult, or suburban communities. Lennar is the largest U.S. homebuilder by market value. On Jan. 15, they reported fourth quarter earnings that beat analysts’ estimates.

Financial Results

It’s commitment to quality, value and integrity helped Lennar to achieve fantastic results in the fourth quarter. Its revenue jumped 42 percent to $1.35 billion. Fourth quarter net earnings in 2012 were $124.3 million, compared to $30.3 million in the fourth quarter of 2011. Operating earnings were $33.2 million compared to $9.1 million in the fourth quarter of the previous fiscal year. New orders increased 32% to 3,983 homes. Contract backlog, an indication of future sales, jumped 87% to 4,053 homes. Net earnings for the fiscal year ended Nov. 30, 2012, were $679.1 million compared to $92.2 million in 2011. Net earnings include a partial reversal of the deferred tax asset valuation allowance of $491.5 million. 

Marching Ahead

For 2013, its average revenue is estimated to $5.46 billion and the average EPS is estimated to be $1.57. The company’s opportunistic land acquisitions and greater operating leverage is going to help the firm’s homebuilding machine in the current fiscal year as well. With a beginning sales backlog value up more than 100% from the prior year, fiscal 2013 promise to be another year of strong profitability. Also, they have invested heavily in home sites in California and Las Vegas, as well as in Florida and Texas, two of the firm’s strongest markets. These investments will provide them with greater opportunities and growth this year. Also, it has incubated a multifamily platform that is now maturing into the construction phase with a pipeline of over $1 billion to be developed over the next three years. Firm’s Five Point large community development program is well positioned to become a significant profit generator in the coming years. The only weakness for the company that would hinder its growth are factors like land restrictions. This might impact its development plans, but seeing the recovery in the housing sector, the company should be able to overcome such issues.

Rivals

DR Horton Inc. (NYSE: DHI) another large US homebuilder, is expected to show around 25% growth in revenue and over 50% growth in earnings this quarter. These numbers are huge and would bring great interest from investors.  With the fantastic quarterly results of Lennar, it gives investors confidence in the DHI’s stock as well.  Its homes closed rose 12%, while the backlog grew 49% in the previous quarter. This is a strong backlog, and it will help in the sales growth of the company’s houses. This poses a big threat to Lennar Corp.

KB Home (NYSE: KBH), one of the nation’s largest and most recognized homebuilders, had 4th quarter results that reflected year-over-year and sequential improvement in most of its key operational and financial metrics. Its revenues rose 20% to $578.2 million, compared to $479.9 million for the fourth quarter of 2011. With higher backlog and more community openings, it is well positioned to be profitable for 2013. Lennar is facing tough competition from KB Home in the new land acquisition. These strong projections are a serious threat for Lennar Corp.

Take Away Advice

Lennar’s fourth quarter results reflect the recovery in housing with solid profitability in all its business segments. It is well positioned to gain market share in a recovering housing market. Also with its large community development program, it will generate huge profits in the coming years. And with the increased home buyer demand in this fiscal year, the company ought to grow substantially. It is going to give good returns to its investor, and I would recommend a strong buy for the long term.


Nidhiz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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