Homebuilder Lennar (LEN.B) has benefited from resurgence in the new-home market, notes Richard Moroney, editor of Dow Theory Forecasts, one of the nation's longest-running financial newsletters, published since 1946.
In the 12 months ended August, Lennar grew sales 17% and per-share profits 28%, while operating cash flow more than tripled.
Analyst projections for profit growth of 9% in both the November quarter and in fiscal 2021 ending November reflect expectations that the housing market will continue its recent strength.
Despite that growth, Lennar remains attractively valued at nine times trailing earnings and eight times projected earnings for fiscal 2021.
In April, new homes sold at an annualized rate of just under 600,000. By September, homes were selling at an annualized rate of 959,000. Home sales fell slightly in September, but the supply of homes remains tight nationwide, with just 3.6 months’ worth on the market.
The combination of low mortgage rates, pent-up demand from prospective buyers who postponed their plans because of the pandemic, and positive demographic trends has us enthusiastic about the prospects for Lennar.
On the demographic side, Lennar is seeing a “tremendous” push from renters to become homeowners, while homeowners in dense urban areas are stepping up to larger suburban houses. In the August quarter, Lennar’s orders rose 16%, solid but slightly below expectations.
At the same time, profit margins widened, reflecting the company’s decision to hold the line on prices, even if it costs some growth around the edges of the market. Lennar is a "Long-Term Buy".
