Why Lennar Can Deliver Big GainsLEN) announced second quarter ended May 31, 2016 total revenue of $2.75 billion, up 15 percent year-over-year from $2.39 billion during the same period last year.
Lennar declared second quarter of 2016 net earnings of $218.5 million or $0.95 per diluted share, up 19 percent year-over-year from $183.0 million or $0.79 per diluted share in second quarter of 2015.
The key homebuilding company reported continued year-over-year expansion in both its top and bottom lines primarily driven by the steadily improving global macroeconomic environment, pushing upwards the new home demand.
There’s significant deficit for production of new homes both for-sale and for-rent markets despite notable overcorrection made in the last few quarters.
Moving ahead, both upside and downside moderators are creating slow but steady housing market recovery with upside primarily obstructed by extremely selective consumer demand, smaller size builders or only limited supply and weak land developers or restricted supply. The downside is particularly supported by notable production shortfall with superior affordability for smaller rates, exceeding the industry’s average and expanding rents.
A look at the growth opportunities
Lennar is observed to be having impressive near-term and long-term growth opportunities with significant customer demand for new homes of all ranges along with attractively improving conditions for new house pricing, driven by the steadily rising income level of consumers and their positively changing attitude towards purchasing their own house.
Lennar has recently crafted a unique growth strategy which is flexible with the rapidly adjusting cycle including, nominal growth rate, weaker pivot land plan, superior focus on delivering robust operational efficiencies, targeting smaller overall leverage and returning to core homebuilders. Going forward, Lennar is uniquely adjusting growth rate all through its expansion cycle depending on strategic land acquisition prospects coupled with fixed threat from cycle timings.
The early cycle is marked by significant growth and divisions getting to acute mass. Mid cycle is identified by moderate expansion, weaker land acquisition required and lesser fresh communities to develop, targeting only strategic land locations, smaller stress on fresh marginal associates hiring while just keeping core performers. Mature cycle is defined by further growth reduction.
The housing company is uniquely adopting a softer pivot land policy comprising of early cycle with a deep discounted purchasing trend and longer duration land, mid cycle with weaker intention to buy tinier duration land and finally, mature cycle with superior buying options, regulate agreement terms, and buy smaller duration land considering time-bound production. In addition, Lennar is focusing on delivering impressive operational efficiencies through supporting overall margins with weaker evolution rate by targeting on achieving key business efficiencies through strategically achieving construction and SG&A efficiencies.
Going forward, Lennar expects to achieve attractive SG&A efficiency by uniquely transitioning to adapt digital marketing, smaller external brokerage involvement and related commission rates while focusing on well-planned marketing leading to enhanced conversions. Also, the company targets achieving superior construction efficiencies through streamlined operations with an attractive Everthing’s Included stage, minimized floor plans, evenly distributed production, minimized model homes required and leverage innovative technologies to minimize labor hours and wastage of materials.
In addition, Lennar is keen on minimizing its total debt position while strengthening the overall financial status to deliver superior company growth.
The strategic moderating growth rate plan of Lennar is believed to continue to reduce the years of owned land supply while minimizing the company’s key expenditures to acquire new land and thus, utilize those savings in delivering attractive prospective company growth.
Overall, the investors are advised to “Hold” their position in Lennar Corporation considering the company’s significant long-term growth prospects but, currently weaker financial position with smaller total cash position of $709.88 million only and significant total debt position of $6.71 billion, restricting the company to continue with its daily operations profitably. The profit margin of 8.52% seems also attractive.
Published on Jul 18, 2016By Subhen Mittra