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Lennar Sees A Profitable 2011
Lennar (NYSE:LEN), one of the nation's largest homebuilders, got the housing market off to a solid start in 2011 when it reported a profitable quarter that beat consensus estimates. For the fourth quarter, Lennar reported net income of $32 million or 17 cents a share. Analysts were expecting EPS of three cents in the quarter.
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A Cleaner Slate
Lennar's fourth quarter results were on a much cleaner slate than the year ago period when Lennar earned $36 million. A year ago, Lennar's income statement benefited from a $320 million one-time tax benefit. Despite a 6% drop in revenues in the quarter, Lennar's profits were bolstered by stronger gross margins as a result of reduced manufacturing costs.
In addition Lennar has been very selective in its homebuilding, seeking areas where demand for housing exists. Lennar's new orders were down 5% in the quarter. Earlier, rival homebuilder KB Home (NYSE:KBH) also reported a profitable quarter but new orders were down 25%. (For more, see KB Brings Home Unexpected Profit.)
A Shrewd Player
Lennar's results can be attributed to experience. The company was around during the last real estate crisis and the company used that period to buy land on the cheap and make opportunistic investments that ultimately paid off when the market turned. To be sure, this recent housing crisis is far more severe than any in recent memory. But Lennar is behaving with the same shrewd long-term mentality. CEO Stuart Miller stated in the earnings release that Lennar would be profitable in 2011 regardless of market conditions as a result of its improving gross margins and opportunistic land buys.
Shares in Lennar were up over 5% on the earnings news. As it stands, shares fetch 36 times forward earnings and 1.5 times book value. That's not cheap, but compare that with Hovnanian (NYSE:HOV) which currently has no earnings or meaningful tangible equity to speak of. Toll Brothers commands a forward P/E of 50 and trades for 1.3 times books.
The Bottom Line
Given Lennar's proven track record for exploiting crises in homebuilding, it may be the one to watch in 2011. (For related reading, see KB Home Climbs Toward The Black.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 9 Simple Investing Ratios You Need To Know
A Cleaner Slate
Lennar's fourth quarter results were on a much cleaner slate than the year ago period when Lennar earned $36 million. A year ago, Lennar's income statement benefited from a $320 million one-time tax benefit. Despite a 6% drop in revenues in the quarter, Lennar's profits were bolstered by stronger gross margins as a result of reduced manufacturing costs.
In addition Lennar has been very selective in its homebuilding, seeking areas where demand for housing exists. Lennar's new orders were down 5% in the quarter. Earlier, rival homebuilder KB Home (NYSE:KBH) also reported a profitable quarter but new orders were down 25%. (For more, see KB Brings Home Unexpected Profit.)
Lennar's results can be attributed to experience. The company was around during the last real estate crisis and the company used that period to buy land on the cheap and make opportunistic investments that ultimately paid off when the market turned. To be sure, this recent housing crisis is far more severe than any in recent memory. But Lennar is behaving with the same shrewd long-term mentality. CEO Stuart Miller stated in the earnings release that Lennar would be profitable in 2011 regardless of market conditions as a result of its improving gross margins and opportunistic land buys.
Shares in Lennar were up over 5% on the earnings news. As it stands, shares fetch 36 times forward earnings and 1.5 times book value. That's not cheap, but compare that with Hovnanian (NYSE:HOV) which currently has no earnings or meaningful tangible equity to speak of. Toll Brothers commands a forward P/E of 50 and trades for 1.3 times books.
The Bottom Line
Given Lennar's proven track record for exploiting crises in homebuilding, it may be the one to watch in 2011. (For related reading, see KB Home Climbs Toward The Black.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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