Lennar (LEN) Snaps Back From Earlier Losses As Investors Focus On The Positives From Q4
2:28 pm Thursday, December 15th, 2022
Lennar (LEN) rebounds nicely after the homebuilder topped earnings and sales estimates in Q4 (Nov). Today’s initial unfavorable reaction largely stemmed from LEN’s weak new orders outlook for Q1 (Feb). The company expects orders to range from 12,000-13,500, reasonably below the new orders of 15,747 it posted in the year-ago quarter. It would also mark the lowest number of new orders since LEN’s pandemic quarter in 2Q20 (May) when the company boasted new orders of just 13,015.
It is no surprise by this point that homebuilders are enduring substantial headwinds given the one-two-punch of rising rates and elevated inflation. However, LEN and many of its close competitors, like D R Horton (DHI) and PulteGroup (PHM), have seen their shares trade mostly in line with the broader market, especially recently, as the Fed’s rate hike campaign becomes clearer.
Outside of a weak new order outlook, LEN also saw its cancellations rate climb to 26% in Q4, up meaningfully from 12% in the year-ago period, underpinning the rapidly changing demand environment as rates increase.
Meanwhile, LEN missed its new orders forecast of 14,000-15,500 for Q4, posting orders of just 13,200, a 15% decline yr/yr.
This sentiment echoes what we have heard over the past few months from other homebuilders like KB Home (KBH) and Toll Brothers (TOL).
Bottom line, LEN will continue to face challenges in the short run. However, the economic picture is becoming more apparent as the Fed provides further details on its rate-raising roadmap and CPI reports indicate inflationary pressures are easing. Finally, it is important to watch the $95 mark, as this price has acted as tough resistance throughout the bulk of the year.
