Will Lennar Build Better Earnings this Quarter?

Photo Credit: Alex Proimos

Lennar (LEN) Consumer Discretionary - Household Durables | Reports December 18, Before Market Opens

Key Takeaways

• The Estimize consensus calls for revenue of $3.012 billion and EPS of $1.14, slightly higher than Wall Street’s estimates
• Housing starts and building permits have significantly increased in November, pointing to a positive outlook for Lennar.
• Despite the housing market recovery, the increase in interest rates, labor, and land costs will impact housing in 2016.
• What are you expecting for LEN? Get your estimate in here!

Lennar, a leading American building company, has consistently outperformed analyst estimates on the backs of a housing market resurgence. When Lennar reports their Q4 2015 earnings on December 18th, it is expected that the company will continue this upward trend. Over the course of 2015, the homebuilder has reported robust results, beating analysts estimates each of the past 7 quarters. For Q4 2015 earnings, the Estimize consensus calls for revenue of $3.012 billion and EPS of $1.14, slightly higher than Wall Street’s estimates. Compared to Q4 2014, this represents a year over year increase in revenue and EPS of 16.7% and  6.5% respectively. Lennar has not only improved from the previous year, but has trended upward each quarter of 2015. Driven by strong housing starts and building permits, the homebuilding company is poised for an encouraging end to 2015. 

In spite of Lennar’s surprising year, housing metrics have fluctuated throughout 2015. After a strong September, housing starts plummeting in October, only to beat estimates in November. Along with an increase in housing starts, building permits surpassed analysts’ expectations for November 2015. On a year over year basis, housing starts and permits increased 16.5% and 19.5% respectively from November 2014. The positive trend in housing starts and permits indicates new houses which were already in construction or near construction. A housing recovery is often a strong indicator of the real economy and for Lennar the key driver of earnings. 

Unlike contractors or regionally located construction companies, Lennar operates all over the United States and has felt the effects of the weaker regions. This year, Texas has been a tale of two cities with Dallas posting strong numbers throughout 2015 and Houston falling flat.  In Houston, Lennar has struggled with stagnant sales of high priced homes and slow order growth. Besides a weak Houston area, the homebuilding company may also be concerned with increases in interest rates, wages and land costs. While interest rates have risen minimally, its impact on 30 year mortgages can be profound. At the moment, the average mortgage rate is 4%, however following this recent increase, mortgage rates are expected to reach 4.7% by the end of 2015. As mortgage rates increase and potential homeowners get pushed out of the market, construction and Lennar’s core business could begin to slow down in 2016.

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While increasing interest rates and costs may negatively impact the housing market in 2016, home starts and permits have been trending upward, pointing to a strong outlook for Lennar’s Q4 2015 earnings report.