Lennar Has To Cut Costs Despite Promising Demand To Weather Economic Uncertainty, Says Analyst

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  • Raymond James analyst Buck Horne reiterated a Market Perform rating on the shares of Lennar Corp LEN after the review of 4Q22 results.
  • Lennar reported 4Q22 GAAP EPS of $4.55, which included $0.25/share of mark-to-market tech investment losses and $0.22/share of land/backlog/option charges. The company expects 1Q23 EPS to be in the range of $1.40-1.70.
  • The analyst said it is seeing some positive demand signals in recent weeks, including increased traffic to its communities and website.
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  • The analyst added that LEN also anticipates its 1Q23 homebuilding gross margin of 21% to be the low point of FY23, as benefits from lower construction costs and lumber prices flow through inventory.
  • The impact of surging mortgage rates has continued to be felt unevenly across different regions.
  • Given the amount of uncertainty in the housing market, management refrained from providing full FY23 guidance and chose to only expand on its expected deliveries of 60,000 – 65,000 homes.
  • While successfully finding buyers in a difficult environment, the pace at which Lennar is lowering home prices has several effects, said the analyst.
  • Acknowledging some very modest green shoots as mortgage rates have dropped to the mid-6% range recently, the analyst said it still appears many potential buyers remain sidelined with growing expectations of further home price reductions in 2023.
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  • According to the analyst, the positive signs included the existing pent-up demand for homes, additional cost savings to stabilize margins and work on monthly affordable payments for buyers.
  • The analyst thinks near-term risks to the macro outlook are substantial, and additional price cuts will likely prove necessary in 2023.
  • Price Action: LEN shares are trading lower by 0.75% at $91.51 on the last check Monday.
  • Photo Via Company
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