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Time to Invest in a Housing Stock: Buy Lennar (LEN) Now
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Despite tough supply chain conditions since 2021, U.S. homebuilders have been enjoying robust demand for homes. The trend is likely to continue in 2022 as low mortgage rates, inventory crunch, increased desire for spacious homes to work from home and improving job conditions are strengthening the Zacks Building Products - Home Builders industry bigwigs like Lennar Corporation (LEN - Free Report) .
Lennar, one of the nation's leading homebuilders, is well positioned to gain from solid housing market fundamentals, improving SG&A leverage as well as strategic land investments. Also, its dynamic pricing model, asset-light strategy and solid backlog level are adding to the bliss.
In the past year, shares of LEN have climbed 39.7%, outperforming the industry, Zacks Construction sector and the S&P 500 Index’s 26.5%, 18.2%, and 25.1% growth, respectively. Similar to Lennar, D.R. Horton, Inc. (DHI - Free Report) , Meritage Homes Corporation (MTH - Free Report) and PulteGroup, Inc. (PHM - Free Report) — each carrying a Zacks Rank #2 (Buy) — have outpaced the industry in the said period.
Lennar, which has been continuously delivering strong performances since fiscal 2014, maintained growth momentum in the fourth quarter of fiscal 2021 as well. On Dec 15, 2021, the company reported solid fourth quarter-fiscal 2021 earnings. Although revenues marginally missed the Zacks Consensus Estimate due to significant supply chain challenges, adjusted earnings beat the same by 5.3%. Also, both earnings and revenues increased 55% and 23.6% year over year, respectively. Home deliveries for the quarter improved 11% and average selling prices or ASPs of homes delivered were up 14% from the year-ago figure.
For fiscal 2021, its total revenues and earnings per share grew 20.4% and 66% year over year, respectively. The results benefited from the solid execution of homebuilding and financial services businesses. Also, higher deliveries and ASPs added to its bliss. Home deliveries improved 13% and ASP was up 7.3% from the year-ago level.
The company was successful in meeting the target of achieving a lower SG&A percentage through the last five years. For fiscal 2021, the SG&A rate improved 100 basis points or bps year over year. The improvement was primarily due to a decrease in broker commissions and benefits from technology efforts.
Efficient Cash, Driving Shareholder Value
Lennar ended fiscal 2021 with $2.74 billion of homebuilding cash and cash equivalents (up from $2.7 billion at fiscal 2020-end). That said, it has no outstanding borrowing under the $2.5-billion revolving credit facility. Hence, LEN has total homebuilding liquidity of approximately $5.2 billion. Additionally, the company ended the quarter with a homebuilding debt to capital of 18.3%, down from 24.9% at fiscal 2021-end. This is the lowest debt-to-capital ratio Lennar has ever achieved.
Recently, it announced a hike in dividend payout, maintaining its commitment to increase stockholder returns. This hike is reflective of the homebuilder’s focus on operational excellence, land strategy and cash flow.
The company increased its quarterly dividend by 50% to 37.5 cents per share ($1.50 annually) from 25 cents ($1.00 annually). This new dividend, approved by the board of directors, will be paid on Feb 10, 2022 to its stockholders of record as of Jan 27.
Asset Light Strategy
Lennar has maintained its relentless focus on a land lighter strategy. The company continues to migrate toward a significantly smaller land-owned inventory, driving business and cash flow. At fiscal 2021-end, controlled homesites — as a percentage of total owned and controlled homesites — increased to 59% from 39% in the year-ago period. As a result, the year’s supply owned improved to 3 years from 3.5 years in the prior year.
Lennar ended fiscal 2021 with a backlog of 23,771 homes (up 26% year over year) and potential housing revenues of $11.4 billion (up 45%). The company is well positioned to deliver solid results for fiscal 2022, given strong backlog and current housing fundamentals.
Solid Fiscal 2022 Prospects
The company has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2022 earnings of $15.60 per share, which indicates 9.3% year-over-year growth. LEN’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in 14 of the trailing 15 quarters, is a testimony to the fact.
Also, it has a solid VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our VGM Score of A or B combined with a Zacks Rank #1 or 2 has the highest probability of success.
A Brief Overview of the Other Homebuilding Stocks
D.R. Horton: This Texas-based prime homebuilder continues to gain from industry-leading market share, a solid acquisition strategy, a well-stocked supply of land, lots, and homes along with affordable product offerings across multiple brands.
DHI’s earnings are expected to rise 27.1% in fiscal 2022.
Meritage Homes: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor.
MTH’s earnings are expected to grow 74.1% in 2021 and 23.7% in the next.
PulteGroup: This Atlanta, GA-based homebuilder engages in homebuilding and financial services businesses, primarily in the United States. Its annual land acquisition strategies have been resulting in improved volumes, revenues and profitability for quite some time now.
PHM’s earnings are expected to grow 37.3% in 2021 and 23.8% in the next.
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Time to Invest in a Housing Stock: Buy Lennar (LEN) Now
Despite tough supply chain conditions since 2021, U.S. homebuilders have been enjoying robust demand for homes. The trend is likely to continue in 2022 as low mortgage rates, inventory crunch, increased desire for spacious homes to work from home and improving job conditions are strengthening the Zacks Building Products - Home Builders industry bigwigs like Lennar Corporation (LEN - Free Report) .
Lennar, one of the nation's leading homebuilders, is well positioned to gain from solid housing market fundamentals, improving SG&A leverage as well as strategic land investments. Also, its dynamic pricing model, asset-light strategy and solid backlog level are adding to the bliss.
In the past year, shares of LEN have climbed 39.7%, outperforming the industry, Zacks Construction sector and the S&P 500 Index’s 26.5%, 18.2%, and 25.1% growth, respectively. Similar to Lennar, D.R. Horton, Inc. (DHI - Free Report) , Meritage Homes Corporation (MTH - Free Report) and PulteGroup, Inc. (PHM - Free Report) — each carrying a Zacks Rank #2 (Buy) — have outpaced the industry in the said period.
Let’s check out the substantial factors supporting growth and increasing the visibility of Lennar. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Impressive Performance
Lennar, which has been continuously delivering strong performances since fiscal 2014, maintained growth momentum in the fourth quarter of fiscal 2021 as well. On Dec 15, 2021, the company reported solid fourth quarter-fiscal 2021 earnings. Although revenues marginally missed the Zacks Consensus Estimate due to significant supply chain challenges, adjusted earnings beat the same by 5.3%. Also, both earnings and revenues increased 55% and 23.6% year over year, respectively. Home deliveries for the quarter improved 11% and average selling prices or ASPs of homes delivered were up 14% from the year-ago figure.
For fiscal 2021, its total revenues and earnings per share grew 20.4% and 66% year over year, respectively. The results benefited from the solid execution of homebuilding and financial services businesses. Also, higher deliveries and ASPs added to its bliss. Home deliveries improved 13% and ASP was up 7.3% from the year-ago level.
The company was successful in meeting the target of achieving a lower SG&A percentage through the last five years. For fiscal 2021, the SG&A rate improved 100 basis points or bps year over year. The improvement was primarily due to a decrease in broker commissions and benefits from technology efforts.
Efficient Cash, Driving Shareholder Value
Lennar ended fiscal 2021 with $2.74 billion of homebuilding cash and cash equivalents (up from $2.7 billion at fiscal 2020-end). That said, it has no outstanding borrowing under the $2.5-billion revolving credit facility. Hence, LEN has total homebuilding liquidity of approximately $5.2 billion. Additionally, the company ended the quarter with a homebuilding debt to capital of 18.3%, down from 24.9% at fiscal 2021-end. This is the lowest debt-to-capital ratio Lennar has ever achieved.
Recently, it announced a hike in dividend payout, maintaining its commitment to increase stockholder returns. This hike is reflective of the homebuilder’s focus on operational excellence, land strategy and cash flow.
The company increased its quarterly dividend by 50% to 37.5 cents per share ($1.50 annually) from 25 cents ($1.00 annually). This new dividend, approved by the board of directors, will be paid on Feb 10, 2022 to its stockholders of record as of Jan 27.
Asset Light Strategy
Lennar has maintained its relentless focus on a land lighter strategy. The company continues to migrate toward a significantly smaller land-owned inventory, driving business and cash flow. At fiscal 2021-end, controlled homesites — as a percentage of total owned and controlled homesites — increased to 59% from 39% in the year-ago period. As a result, the year’s supply owned improved to 3 years from 3.5 years in the prior year.
Lennar ended fiscal 2021 with a backlog of 23,771 homes (up 26% year over year) and potential housing revenues of $11.4 billion (up 45%). The company is well positioned to deliver solid results for fiscal 2022, given strong backlog and current housing fundamentals.
Solid Fiscal 2022 Prospects
The company has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2022 earnings of $15.60 per share, which indicates 9.3% year-over-year growth. LEN’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in 14 of the trailing 15 quarters, is a testimony to the fact.
Also, it has a solid VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our VGM Score of A or B combined with a Zacks Rank #1 or 2 has the highest probability of success.
A Brief Overview of the Other Homebuilding Stocks
D.R. Horton: This Texas-based prime homebuilder continues to gain from industry-leading market share, a solid acquisition strategy, a well-stocked supply of land, lots, and homes along with affordable product offerings across multiple brands.
DHI’s earnings are expected to rise 27.1% in fiscal 2022.
Meritage Homes: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor.
MTH’s earnings are expected to grow 74.1% in 2021 and 23.7% in the next.
PulteGroup: This Atlanta, GA-based homebuilder engages in homebuilding and financial services businesses, primarily in the United States. Its annual land acquisition strategies have been resulting in improved volumes, revenues and profitability for quite some time now.
PHM’s earnings are expected to grow 37.3% in 2021 and 23.8% in the next.