Lennar Cautiously Optimistic About 2012

By Sham Gad | January 13, 2012 AAA

Homebuilder Lennar Corp (NYSE:LEN) reported 2011 fourth quarter earnings per share (EPS) of 16 cents compared with EPS of 17 cents in the year ago quarter. Revenues of roughly $952 million were up 11% quarter over quarter. While the quarter highlighted several improvements for one of the nation's largest homebuilders, the market was most pleased with what it said about the future. (For related reading, see How Interest Rates Affect The Housing Market.)

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Climbing from the Bottom
Shares jumped over 7% on the earnings news as a result of some positive developments. New orders were up 20% while its backlog grew by 35%, respectively. The fact that the housing industry has been scrapping the bottom makes it easier to report good growth numbers, and the company is the nation's third largest homebuilder by revenue, after PulteGroup (NYSE:PHM) and D.R. Horton (NYSE:DHI). The outlook provides good insight into the housing industry though. There is an initial indication that the housing market may finally show signs of stabilization in 2012. Record low interest rates coupled with very attractive real estate prices are giving first timers a golden opportunity to capture tremendous value in the buying process today. Indeed, housing starts for November 2011 climbed to a 19 month high along with improved builder confidence. A favorable outlook sent shares up $1.49 to trade above $22, the highest share price in over four years. (For more information, read Economic Indicators: Housing Starts.)

Not so Fast
Not surprisingly, markets have been anticipating favorable news from the housing industry and has already treated it favorably. The SPDR Homebuilder ETF (ARCA:XHB) is up over 9% already in 2012 compared with around 3% for the S&P 500. It's foolish to think that the housing industry is headed for a full recovery yet with unemployment still high. But the market won't wait for a recovery to occur to push share prices. Still, it will take more than one company's favorable outlook to convince investors these days. First, the market will want to see some similar news from PulteGroup and D.R. Horton as they are the nation's top two homebuilders. KB Homes (NYSE:KBH) and Toll Brothers (NYSE:TOL) are two more quality builders that the market will want to see good news order numbers from as well.

The Bottom Line
It will be a long time before housing starts approaching the levels from 2005 and 2006, if ever. But even a slow and steady housing start growth in 2012 will go a long way in helping to heal the industry and the economy as a whole. Banks are finally making good loans for the right reasons. This year could finally be the beginning of a slow but much needed recovery in housing. (For additional information, read Remodeling The Housing Finance Industry.)

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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