Lennar (LEN, Financial) has entered the new fiscal 2015 strongly, having delivered better-than-expected results. The shares rose impressively after the homebuilder released strong results. However, the fall in sales in Houston surprised everyone. But Lennar is well-positioned from an overall point of view going forward.
Impressive growth
Lennar reported a solid 21% growth in the revenue. The company’s operational excellence is evident with a solid 47% growth in its net earnings. In addition, new home deliveries for Lennar also saw an uplift by 19%, primarily supported by the recovering housing market. However, Lennar is slightly worried about the decline in the sales in Houston as it counts for 12% of Lennar’s total orders. The growing housing market also led Lennar to see good 19% growth in deliveries also leading a 3% increase in the average sales price of homes delivered.
Lennar is undoubtedly prepared for better long-term gains as the company is seeing good traction in the market which can be seen by a solid 18% increase in the new orders. While on the earnings front, Lennar’s earnings also rose by a solid 43%. The analysts are expected Lennar to one of the top stocks to invest in this growing housing market.
Growth strategies
Lennar is now focusing primarily on the growth prospects and is making efforts to create a profitable business model. Under this, Lennar has started working at the ground level with a major focus on the costs reduction initiatives. The decline in the commodity prices including copper and steel are also one of the key aspects that led the company to reduce its costs so that it can provide new homes at competitive prices. Lennar also has a strong land portfolio that will help it to secure not only long-term but also near-term goals. Lennar now has a strong portfolio of 163,000 home sites out of which 133,000 are already possessed.
Moving forward, Lennar is expected to gain much market share in the future on the back of a strong balance sheet. The company is in a solid liquidity position with $584 million cash in hand. This can be a great attraction to the investors ultimately helping it to be impressive on the stock exchange as well. In addition, with a strong refinancing environment, Lennar is expecting good opportunities for its financial services as well. Considering the growth opportunities in this, Lennar has also increased its goal for this segment and is now expecting to earn $95 million to $100 million for the full fiscal 2015.
The recovering U.S economy is also leading to an improvement of employment scenario. This is also expected to improve the purchasing capacity of the buyers. But the news that the Federal Reserve will raise the interest and mortgage rates might hurt Lennar’s margins a bit.
Conclusion
Moving to the fundamentals now. The stock looks cheap with a trailing P/E of 17.04 while the forward P/E of 14.16 shows robust growth in earnings in the near term. The profit margin of 8.38 is also very impressive and is expected to attract the investors. The stock can also be a good long term holding as its earnings for the next five years are growing at a CAGR of 13.08% as compared to just 5.78% industry average. Considering all these, I would like to suggest the investors to surely pick Lennar now.
