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Will Higher Housing Demand Drive Lennar's (LEN) Q4 Revenues?

Zacks Equity Research
Updated

Lennar Corporation LEN is set to report fourth-quarter fiscal 2017 results on Jan 10, before market open. Like other major homebuilding companies, Lennar has been reporting solid top-line numbers buoyed by strong demand for homes, favorable job market and impressive economic conditions.

Miami-based homebuilder offers a diversified line of homes for first-time, move-up and active adult homebuyers. Additionally, it regularly upgrades homes to cater to the changing consumer requirements.

Lennar’s shares have gained 19.9% in the last three months compared with 24.8% growth of the industry.




Let’s see how the company's top line is shaping up for this earnings season.

The company’s total revenues increased 15% year over year in the last reported quarter. In the first nine months of fiscal 2017, total revenues advanced 17% year over year on the back of a solid 28.3% rise in homebuilding revenues. The trend is likely to continue in the to-be-reported quarter as well.

According to the Zacks Consensus Estimate, the company’s Homebuilding segment revenues (comprising almost 88.5% of total revenues) of $3.2 billion are likely to increase 11.4% sequentially and 6.9% year over year. This is expected to be driven by higher average selling prices and the delivery of a significant portion of the backlog.

The company’s order trend also remained solid, growing 10.7% in the first three quarters of fiscal 2017. The consensus estimate for new home orders of 6,533 homes reflects 0.8% year-over-year growth. However, new orders are likely to witness 14.2% decline sequentially in the to-be-reported quarter.

The company expects deliveries to be in the range of 8,200-8,300 for the final quarter of fiscal 2017 compared with 8,228 in the year-ago quarter and 7,598 in the preceding one.

The Financial Services segment is also performing well in tandem with its homebuilding operations and is innovating new products like its recently announced creative student loan program. However, the segment is likely to register significant decline in refinances, lack of resale inventory and the storm impact. The consensus estimate for the segment revenues of $204 million reflects 5.1% sequential decline. However, it is expected to grow 4.1% on a year-over-year basis.

In the Rialto Investments segment, the investment and asset management platform continues to grow its asset base. In the Rialto Mortgage Finance or RMF side of the business, market conditions have continued to be favorable, which has helped it in maintaining its position as one of the largest and most profitable non-bank CMBS (commercial mortgage-backed securities) originators. The Zacks Consensus Estimate for segment revenues are pegged at $81 million compared with $58 million in the prior quarter and $81.5 million in the year-ago quarter.

Lastly, Lennar Multifamily platform also continues to grow and the segment is expected to register $103 million in revenues, as per the Zacks Consensus Estimate. This represents 11.7% year-over-year growth, while remaining unchanged sequentially.

For the fiscal fourth quarter, the Zacks Consensus Estimate for total revenues is pegged at $3.6 billion, reflecting sequential growth of 11%. Revenues of this Zacks Rank #3 (Hold) company are likely to grow 7.2% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

A few better-ranked stocks in the Construction sector are Cementos Pacasmayo S.A.A. CPAC, Century Communities, Inc. CCS and NVR, Inc. NVR, each carrying a Zacks Rank #2 (Buy).

Full-year 2018 earnings for Cementos Pacasmayo are expected to increase 41.9%, while that of Century Communities is likely to rise 60.6%.

NVR is expected to witness 16.8% growth in 2018 earnings.

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Cementos Pacasmayo S.A.A. (CPAC) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
NVR, Inc. (NVR) : Free Stock Analysis Report
 
Century Communities, Inc. (CCS) : Free Stock Analysis Report
 
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Zacks Investment Research