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if there is pent up demand, home buyers there are plenty of existing homes for sale through foreclosures,
etc. Also, home construction has necessarily slowed quite a lot, this is what the market needs to chip away
at the supply overhang, but we anticipate further difficulty for home builders in the quarters ahead.LEN
On Thursday morning, residential construction company Lennar (LEN) reported dismal results for their
fiscal second quarter. Analysts had a wide range of expectations but the consensus called for a quarterly
loss of $.64 on revenue of $597.5 million, but although revenue greatly outpaced expectations the bottom
line earnings results was a loss of 76 cents. The worse than expected overall results were dragged down
in large part by write-downs on land values amounting to about 65 cents.
When you taking away the one-time charges Lennar actually performed quite well given the
circumstances, and spurred by the operating performance the stock is up about 13% this morning.
However, it seems to be a little bit of a contradictions in the home building industry to call these write-
downs a one-time event. The write-downs have been a storyline in each quarter for nearly all
homebuilders for the last two years, and many times the write-downs have been severe. The good news is
inventories fell drastically by 53% at Lennar, and even though orders were down 19% from a year ago,
they were up by 63% from the first quarter. Cancellations also improved from the low 20% to just 15%.
Lennar is starting to show signs of recovery, and on the whole we have the stock’s valuation at current
price levels as Fairly Valued. However, we are slightly more positive on this stock than the Residential
Construction sector as a group. We are not bullish on the sector yet because of the supply glut that
continues to be a major problem in housing, and the fact that all homebuilders have land assets that are
continuing to lose value. As of year end 2008 Lennar owned more lots than any homebuilders besides
Pulte Homes (PHM) and D.R. Horton (DHI). We are starting to see what could be the beginning of a
rebound, but it is too early to tell and these homebuilder stocks are still too risky for our tastes. Write-
downs continue to wear on earnings and we are hesitant to recommend any stock that has not turned a
profit in 10 of the last 11 quarters, especially when there is a history of profitability as is the case for
Lennar.
Original Article
etc. Also, home construction has necessarily slowed quite a lot, this is what the market needs to chip away
at the supply overhang, but we anticipate further difficulty for home builders in the quarters ahead.LEN
On Thursday morning, residential construction company Lennar (LEN) reported dismal results for their
fiscal second quarter. Analysts had a wide range of expectations but the consensus called for a quarterly
loss of $.64 on revenue of $597.5 million, but although revenue greatly outpaced expectations the bottom
line earnings results was a loss of 76 cents. The worse than expected overall results were dragged down
in large part by write-downs on land values amounting to about 65 cents.
When you taking away the one-time charges Lennar actually performed quite well given the
circumstances, and spurred by the operating performance the stock is up about 13% this morning.
However, it seems to be a little bit of a contradictions in the home building industry to call these write-
downs a one-time event. The write-downs have been a storyline in each quarter for nearly all
homebuilders for the last two years, and many times the write-downs have been severe. The good news is
inventories fell drastically by 53% at Lennar, and even though orders were down 19% from a year ago,
they were up by 63% from the first quarter. Cancellations also improved from the low 20% to just 15%.
Lennar is starting to show signs of recovery, and on the whole we have the stock’s valuation at current
price levels as Fairly Valued. However, we are slightly more positive on this stock than the Residential
Construction sector as a group. We are not bullish on the sector yet because of the supply glut that
continues to be a major problem in housing, and the fact that all homebuilders have land assets that are
continuing to lose value. As of year end 2008 Lennar owned more lots than any homebuilders besides
Pulte Homes (PHM) and D.R. Horton (DHI). We are starting to see what could be the beginning of a
rebound, but it is too early to tell and these homebuilder stocks are still too risky for our tastes. Write-
downs continue to wear on earnings and we are hesitant to recommend any stock that has not turned a
profit in 10 of the last 11 quarters, especially when there is a history of profitability as is the case for
Lennar.
Original Article
| Write-Downs Continue for Home Builder Lennar by Ockham Research, June 25, 2009 |
As much as people want to believe in the “green shoots” of a recovery,
the housing market continues to be a persistent reminder that all is not
well. Yesterday the new homes sales data for May came in lower than
expected, and the supply of unsold homes would last more than 10
months at the current pace of 342,000 annual sales rate. That being
said homebuilders have restrained building over the last few quarters
and the number of new homes for sale that are still under construction
fell to the lowest level since 1970! Even existing home sales were
weaker than expected, although they did show an increase of 2.4%
over last year; the existing home supply would last 9.6 months at this
sales pace. This tells us a couple of important things, one is that even
the housing market continues to be a persistent reminder that all is not
well. Yesterday the new homes sales data for May came in lower than
expected, and the supply of unsold homes would last more than 10
months at the current pace of 342,000 annual sales rate. That being
said homebuilders have restrained building over the last few quarters
and the number of new homes for sale that are still under construction
fell to the lowest level since 1970! Even existing home sales were
weaker than expected, although they did show an increase of 2.4%
over last year; the existing home supply would last 9.6 months at this
sales pace. This tells us a couple of important things, one is that even
| Ockham Research is an independent equity research provider that provides a full suite of investment research products for individuals at just $1 per month. View Ockham's Blog. Read Ockham's Bio. |
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