Lennar is the nation’s second largest home builder. They own a huge number of buildable lots and are prepared to build and deliver 50,000 homes in 2019. Corelogic reported recently that over 25% of millennials are considering a home purchase in the next 12 months. Lennar has real assets and trades at 10x 2019 profits. (Smead Capital). We are a national homebuilder that operates in various states with deliveries of 29,394 new homes in fiscal 2017. Our company was founded as a local Miami homebuilder in 1954. We completed our initial public offering in 1971 and listed our common stock on the New York Stock Exchange in 1972. During the 1980s and 1990s, we entered and expanded operations in a number of homebuilding markets, including California, Florida and Texas, through both organic growth and acquisitions, such as Pacific Greystone Corporation in 1997. In 1997, we completed the spin-off of our then commercial real estate business, LNR Property Corporation. In 2000, we acquired U.S. Home Corporation, which expanded our operations into New Jersey, Maryland, Virginia, Minnesota and Colorado and strengthened our position in other states. From 2002 through 2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our position in several existing markets. From 2010 through 2013, we expanded our homebuilding operations into the Atlanta, Oregon, Seattle and Nashville markets. In 2017 we acquired WCI Communities, a luxury homebuilder in Florida. Through the 2018 acquisition of CalAtlantic Communities we increased our local market scale and additionally it allowed us to enter the Salt Lake City and Indianapolis markets.
Through the most recent economic downturn, we strengthened and expanded our competitive position through strategic purchases of land at favorable prices. We are currently focused on maintaining moderate growth in community count and homes sales, reducing selling, general and administrative expenses by using innovative strategies to reduce customer acquisition costs, as well as on our soft-pivot land strategy, shortening the average time between when we acquire land and when we expect to begin building homes on it.
Net earnings of $421.5 million, or $1.30 per diluted share, compared to net earnings of $310.3 million, or $0.94 per diluted share Deliveries of 12,729 homes – up 5%
New orders of 14,518 homes – up 1%; new orders dollar value of $5.8 billion – down 4%
Backlog of 19,061 homes – down 3%; backlog dollar value of $7.7 billion – down 10%
Revenues of $5.6 billion – up 2%
Homebuilding operating margins of $608.3 million, compared to $427.9 million
Gross margin on home sales of 20.1%, compared to 16.8% (21.6% excluding purchase accounting) S,G&A expenses as a % of revenues from home sales of 8.4%, compared to 8.7%
Operating margin on home sales of 11.6%, compared to 8.2% (12.9% excluding purchase accounting)
Homebuilding cash and cash equivalents of $801 million
Homebuilding debt to total capital of 38.3%
Subsequent to quarter end, retired $500 million of homebuilding senior notes
Repurchased one million shares for approximately $52 million
From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Lennar scores well as of 9/17/19:
89% high 3YR sales growth
88% high free cash flow growth
87% low price/sales
95% high shareholder yield - benefits shareholders receive in the form of cash dividends, net stock repurchases, and debt reduction
99% high 1 YR sales growth
99% accelerating 1Yr sales growth versus the 3YR average
98% high sales surprises last quarter
Lennar could be considered a tactical investment for Dynamic Brands rather than a core, long-term allocation. As interest rates have fallen and employment & incomes stay strong, home affordability is still a positive factor in certain parts of the country. As Millennials finally decide to nest, and they will, they will begin buying houses and improving their current house. Lennar and other home related companies should benefit given significant tailwinds in household formation and a favorable supply/demand picture. The stock is cheap, adds some value stock exposure and is playing in a favored category. The technical picture is also positive offering a solid tactical opportunity. If this turns into a long-term investment, so be it.