Warren Buffett-backed S&P 500 component Lennar (LEN) reported better-than-expected second-quarter earnings and revenue late Monday as the homebuilder kicked off a busy week for real estate and housing market observers.
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Miami-based Lennar announced Monday that second-quarter earnings grew 15% to $3.45 per share while revenue totaled $8.8 billion, increasing 9% compared to a year ago. Analysts expected EPS of $3.23 and $8.48 billion in sales.
Meanwhile, Lennar saw new orders increase 19% to 21,293 homes and ended the quarter with a backlog of 17,873 homes, valued at $8.2 billion. The company delivered 19,690 homes in Q2, a 15% increase vs. Q2 2023. The average sales price of homes delivered was $426,000 in the second quarter, down 5% compared to a year ago.
Lennar said Monday that the decrease in the average sales price of homes was primarily due to an "increased use of incentives and product mix."
Analysts predicted Lennar would deliver 19,353 homes with an average price of $422,800, according to FactSet. In March, Lennar forecast Q2 EPS between $3.15-$3.25 with home deliveries coming in at 19,000-19,500. The company also forecast the average price per home delivered would be between $420,000-$425,000.
"We are pleased to report another strong quarter against the backdrop of evolving market conditions as interest rates rose for most of the quarter and then subsided as the quarter closed," Co-Chief Executive Stuart Miller said in the earnings release Monday.
Miller added that "affordability continued to be tested by interest rate movements and simultaneously challenged consumer sentiment."
Looking ahead to the third quarter, Lennar predicts home deliveries between 20,500-21,000 with an average sales price of $420,000-$425,000.
S&P 500: Busy Week For Real Estate And Housing
Following Lennar, fellow homebuilder KB Home (KBH) reports earnings after Tuesday's market close. Analysts predict a 7% decline in EPS with revenue for the homebuilder slipping 6% in the second quarter. Consensus views call for a modest uptick in both housing starts and building permits for May, according to Econoday.
Meanwhile, the June National Association of Home Builders survey and May housing starts and existing-homes sales reports are due this week. Housing starts fell in April as mortgage rates crept higher. Econoday calls for a flat reading from the NAHB survey.
The U.S. Census Bureau will report May housing starts on June 20 with the National Association of Realtors (NAR) releasing May existing-home sales on June 21. The key economic metric for homebuilders, new-home sales, is due to be reported on June 26.
U.S. Housing Market And Warren Buffett
The big picture in the U.S. is that of a long-term housing shortage. The construction of new homes has not kept pace with the growing population. Rising material costs, supply-chain issues and labor shortages since the Covid pandemic have exacerbated the issue.
The shortage is currently running at a deficit of about 5.5 million homes, according to the National Association of Realtors. The gap is so large it would take more than a decade to close, the NAR says, even if new-home construction accelerates.
In 2023, new-home prices remained strong and demand steady as high mortgage rates left owners of existing homes holding tight — not wanting to sell and move up into more expensive mortgages.
Warren Buffett purchased around $20 million worth of S&P 500 component Lennar in 2023, along with adding a D.R. Horton (DHI) position, which he subsequently sold.
What's Inside Berkshire Hathaway's Portfolio?
S&P 500 Stock: Lennar Performance
Lennar stock fell 3% during premarket trade on Tuesday. The S&P 500 stock had advanced 0.9% to 156.52 on Monday. KB Home shares fell 0.4% early Tuesday after gaining 1.6% to 69.52 on Monday. Both Lennar and KB Home stocks have pulled back recently. Lennar is testing lows from April. KB Home is testing support at its 10-week line.
LEN shares have a flat base with an official buy point of 172.59, according to MarketSurge analysis. The stock is currently about 10% below that entry. The S&P 500 stock has lost 3% in June but has advanced 4% in 2024.
On Jan. 9, Lennar hiked its annual dividend by 50 cents to $2 per share. The homebuilder also authorized an increase to its stock-repurchase program to $5 billion.
"Given the strength of our balance sheet, our strong cash position and our operating strategy driving cash flow, we are focusing more of our capital allocation on maximizing total shareholder returns," co-Chief Executive Stuart Miller said at the time.
The IBD-tracked Building-Residential/Commercial industry group surged 60% in 2023. This year, the 22 stocks in the group have collectively advanced 6.4%.
KB Home stock has formed a cup-with-handle base with a 70.58 buy point. The stock has advanced around 10% in 2024 but has dropped more than 3% in June.
Lennar stock has an 86 Composite Rating out of a best-possible 99. The S&P 500 stock has an 81 Relative Strength Rating. The EPS Rating for the S&P 500 component is 93.
Also on Monday, luxury homebuilder Toll Brothers (TOL) received an upgrade to neutral, from sell, by Goldman Sachs. The note placed a price target of 124 on its stock, not quite 4% above where shares traded Monday morning.
Please follow Kit Norton on X @KitNorton for more coverage.
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