Warren Buffett's Bet On Lennar: Will The Homebuilding Giant's Earnings Report Validate The Investment?

Zinger Key Points
  • Berkshire Hathaway has a $20 million stake in Lennar, Buffett sold shares in D.R. Horton.
  • Housing market data is improving which has been supportive of the sector.

Lennar Corp LEN is the last of the major homebuilders to report earnings for the October-December period on Wednesday and gives the market an update on the state of the homebuilding industry.

Consensus estimates suggest earnings per share of $2.21, up 4.2% from the $2.12 reported in the same quarter a year ago.

More importantly, Lennar consistently beat earnings expectations for more than three years and by double-digit percentages in the past four quarters. The market could be looking for something special here.

The Oracle of Omaha, Warren Buffett, purchased around $20 million worth of Lennar shares in 2023, along with shares in D.R. Horton Inc DHI, which he subsequently sold.

This was a prescient move, as D.R. Horton’s shares fell sharply in January after investors failed to be impressed by the quality of its earnings in the final quarter of 2023. Nevertheless, D.R. Horton shares remain 0.2% higher in 2024.

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Results From Rivals

But will Buffett’s faith in Lennar pay off? Let’s look at some of the other results in the sector.

Toll Brothers Inc. TOL did impress with its results, with a strong earnings beat, confident outlook for 2024 and the promise of shareholder returns through dividends and buybacks. Toll Brothers shares are up 15.6% so far in 2024.

NVR Inc. NVR reported similarly impressive results and guidance for the year ahead, and its shares are up 8.4% year-to-date.

Pulte Group PHM had an outlook that was a little disappointing and saw shares dip over a two-week period in early February, but remained nearly 7% higher over the year so far.

Thus, Lennar, with shares up 9.4% in 2024, could possibly see some “buy-the-rumor-sell-the-fact” action on Wednesday — particularly if the broader markets remain as volatile as they have been in recent sessions, with some big tech names falling victim to profit-taking after scaling record highs.

Lennar, D.R. Horton, NVR and Pulte are the top four holdings on the iShares U.S. Home Construction ETF ITB, with Toll Brothers a little lower down. Together, they’ve powered the exchange-traded fund 8% higher in 2024.

Housing Market Data Improving

It’s been an improving few months in the early part of 2024 as far as housing market data are concerned. Both new home sales and existing home sales are improving from lows seen in December, while mortgage applications surged 9.7% in the week up to March 1.

Mortgage rates have fallen from their highs on expectations the Federal Reserve will begin cutting the main interest rate in the coming months, helping mitigate affordability issues for new buyers.

And, although January housing starts data shocked the market, showing a 14.8% slump on starts on new projects, analysts were quick to point out that this was more likely the result of severe winter storms rather than falling demand.

With housing market conditions appearing to improve, the stage could be set for a positive earnings report and outlook for Lennar. The company has already made the confident move of announcing it was raising its dividend from $1.50 to $2, plus an additional $5 billion on its share repurchase program.

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Posted In: EarningsEquitiesLarge CapNewsSector ETFsTop StoriesEconomicsFederal ReserveMarketsPersonal FinanceETFsGeneralReal Estatehomebuilder ETFshomebuildersHousingMortgagesStories That MatterWarren Buffett
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