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Lennar stock (LEN) climbs on earnings growth amid housing slowdown

15:26, 21 June 2022

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A view of US homes in a suburb
US housebuilder Lennar's stock rose despite recent downward economic indicators – Photo: Shutterstock

The stock of a US housebuilder rose on Tuesday thanks to consensus-beating earnings, despite signs of a market slowdown beginning to appear in the sector.

Lennar (LEN) stock was up as high as 5% in early-morning US trading. For the past month, the stock is down 12%.

Lennar (LEN) stock

Founded in 1954, Miami, Florida-based Lennar is amongst the biggest US housebuilders, alongside D.R. Horton, PulteGroup, NVR and KB Home.

A finished home build by US housebuilder LennarLennar

Lennar’s operations include the construction and sale of single-family houses as well as land development and rental property management.

Q2 earnings

For its fiscal second quarter ended 31 May, Lennar reported adjusted earnings of $4.69 per share on total revenues which rose 30.0% to $8.36bn (£6.81bn, €7.92bn).

Analysts had been expecting earnings of $3.95 per share on total revenue of $8.12bn, according to figures widely available on financial news sites.

"The Fed's stated determination to curtail inflation through interest rate increases and quantitative tightening have begun to have the desired effect of slowing sales in some markets and stalling price increases across the country,” Lennar’s chairman Stuart Miller said in a statement.

“...the relationship between price and interest rates is going through a rebalance.” - Lennar chairman Stuart Miller

“While we believe that there remains a significant shortage of dwellings, and especially workforce housing, in the United States, the relationship between price and interest rates is going through a rebalance.”

Lennar said its backlog was up 16% to 28,624 homes, which had a dollar value of $14.7bn.

Looking ahead, for the current third quarter, Lennar said it expects new orders of 16,000 to 18,000 homes, compared to analyst estimates of 16,754 homes.

US housing snapshot

Slide showing the trend in US new home salesUS new home sales

The latest reading on the US housing market shows that new home sales fell 16.6% during April, the fourth consecutive monthly decline. April's fall is the sharpest monthly contraction since July 2013.

“Borrowing costs only appear to be rising further. On top of higher rates, new home prices continue to rise at a rapid pace: the median new home price rose to $450,600, up 19.6% from April 2021,” economists at Wells Fargo Securities wrote.

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Data for new home sales for the month of May are due for release on 28 June.

Another measure of housing sentiment are new housing starts, which show the number of new homes being started, which can reflect trends such as housing demand and consumer sentiment.

Total housing starts dropped 14.4% during May, according to the National Association of Home Builders. May's drop brought total housing starts to a 1.549 million-unit pace, the slowest since April 2021.

Slide showing the trend for US housing startsUS housing starts

“The [US] housing market is clearly losing some of its pandemic driven momentum,” economists with TD Economics wrote in a recent note.

“As the central bank continues to ratchet up interest rates in an effort to bring multi-decade high inflation under control, the housing market is likely to continue to feel the brunt of the impact as mortgage rates climb higher.”

 

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