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Here's Why Investors Should Buy Lennar (LEN) Stock Right Now

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Lennar Corporation (LEN - Free Report) has been reaping benefits from operational efficiency that continues to drive strong bottom-line improvement and cash flow despite continuous supply-chain disruptions.

Shares of this Miami, FL-based homebuilder have dropped 5.6% over the past six months versus the industry’s 3.7% decline. Nonetheless, earnings estimates for fiscal 2022 have increased to $15.84 from $15.82 per share over the past seven days, depicting analysts’ optimism over the stock’s solid prospects.

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Recently, the homebuilder reported impressive first-quarter fiscal 2022 results, wherein earnings and revenues beat analysts’ expectations, marking the 12th consecutive quarter of earnings beat. Earnings jumped 32.4% year over year, given higher demand for new homes despite unprecedented supply chain challenges.

Despite geopolitical turmoil, inflationary pressures and rising interest rates, the housing market remained very strong in all the company’s major markets during first-quarter fiscal 2022. Quarterly deliveries grew 2% year over year to 12,538 homes, gross margin increased 190 basis points (bps) to 26.9% and SG&A improved 90 bps to 7.5%, which drove net margin to 19.4% and resulted in bottom-line improvement.

Let’s delve deeper into the factors supporting this Zacks Rank #2 (Buy) company’s growth trajectory. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Drivers

Upbeat Projection: With the housing industry continuing to exhibit strong demand, outweighing supply, Lennar remains confident to continue generating solid growth and enhancing its current market position. For fiscal 2022, Lennar now expects deliveries of 68,000 homes (versus 67,000 homes expected earlier) and homebuilding gross margin within 27.25-28% (with the earlier expectation being 27-27.5%). ASP is projected within $470,000-$475,000 (versus $460,000 projected before). SG&A expenses, as a percentage of home sales, are likely to be 6.6-6.8%. Earlier, Lennar expected SG&A of 6.8-6.9% for the year.

The Zacks Consensus Estimate for fiscal 2022 earnings calls for 11% year-over-year growth. The same for revenues indicates 25.7% year-over-year growth.

Solid Backlog Level: Backlog at fiscal first quarter-end climbed 24% from a year ago to 27,335. Potential housing revenues from backlog also advanced 43% year over year to $13.6 billion. The company is well positioned to deliver solid results for fiscal 2022, given a strong backlog and current housing fundamentals.

Enough Liquidity: With strong performance and cash flow, Lennar has fortified its balance sheet with $1.4 billion of cash. Additionally, LEN has no outstanding borrowing under the $2.5-billion revolving credit facility. Hence, it has total homebuilding liquidity of approximately $3.9 billion. Also, the company ended the quarter with a homebuilding debt to capital of 18.3%, in line with fiscal 2021-end. Total homebuilding debt was $4.64 billion as of Feb 28, 2022, down from $4.65 billion on Nov 30, 2021.

Other Top-Ranked Stocks From the Same Industry

D.R. Horton, Inc. (DHI - Free Report) currently carries a Zacks Rank #2. This homebuilder continues to gain from its industry-leading market share, solid acquisition strategy, a well-stocked supply of land, lots and homes along with affordable product offerings across multiple brands.

D.R. Horton has declined 3.1% over a year. That said, earnings are expected to grow 38.5% in fiscal 2022.

M.D.C. Holdings, Inc. currently holds a Zacks Rank #2. The company’s build-to-order operating model and focus on more affordable homes have been major driving factors.

M.D.C. Holdings’ shares have declined 11.2% over a year. Yet, earnings are expected to grow 35.5% in 2022.

TRI Pointe Group Inc. (TPH - Free Report) currently carries a Zacks Rank #2. This Irvine, CA-based homebuilder designs, constructs, and sells single-family detached and attached homes in the United States. Robust demand and pricing as well as improved operating leverage have been driving TRI Pointe's performance. Cost-cutting initiatives implemented earlier this year and focus on entry-level buyers have been adding to the positives.

TRI Pointe has gained 6.4% over a year. Earnings for 2022 are expected to grow 21.1%.


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