S&P 500 component Lennar (LEN) stock fell after reporting falling average sale prices amid otherwise better-than-expected third-quarter results late Thursday. The real estate and housing market is expected to get a boost after the Federal Reserve cut interest rates on Wednesday.
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Miami-based Lennar announced Thursday that Q3 earnings grew 10% to $4.26 per share while revenue totaled $9.4 billion, up around 8% compared to Q3 2023.
Home deliveries increased 16% to 21,516 homes. But the average sales price per home was $422,000, down about 6% compared to a year ago, suggesting increased discounts and incentives used to effect sales.
Lennar also ended the quarter with a backlog of 16,944 homes with a dollar value of $7.7 billion.
Prior to Thursday’s release, analysts expected EPS of $3.64 and $9.14 billion in sales. Analyst consensus had Lennar delivering 20,819 homes with an average price of $424,580 in the third quarter, according to FactSet.
At the end of the second quarter Lennar forecast Q3 home deliveries between 20,500-21,000 with an average sales price of $420,000-$425,000.
“Although affordability continued to be tested during the quarter, purchasers remained responsive to increased sales incentives,” co-Chief Executive Stuart Miller said in the earnings release Thursday.
Lennar stock fell 2.4% during premarket action Friday after gaining more than 2% to 192.45, hitting an all-time high of 193.80, on Thursday.
The S&P 500 stock has advanced 5.7% in September.
The Federal Reserve cut rates on Wednesday for the first time since the Covid crisis. The Open Market Committee went with a 50-basis-point cut, at the high-end of investor expectations.
Fed Chief Jerome Powell also signaled more easing along with an economic soft landing. The “dot plot” of policymakers signaled a total of 100 basis points of easing in 2024, meaning 50 basis points over the November and December meetings. Markets had almost fully priced in 100 basis points of cuts for the year, with a majority expecting 125 basis points.
For 2025, policymakers see another 100 basis points of Fed rate cuts, bringing the key rate down to a 3.25%-3.5% range.
Homebuilders for more than a year have said that housing affordability has been tested by interest rate movements. Many homebuilders, including Lennar, have turned to incentives to keep home prices down and drum up demand amid increased interest rates. However, with the Fed’s decision to cut rates more people could be looking at purchasing homes without incentives, leading to higher profit for Lennar and others.
“This week, the Fed decreased interest rates which should start to enhance affordability and accelerate the already strong demand for both new and existing homes,” Miller said Thursday.
“While strong demand, enabled by incentives and mortgage rate buydowns, has driven the new home market over the past two years, we fully expect an even stronger, and more broad-based demand cycle, as rates move lower. Lower rates and controlled inflation will likely boost confidence,” Miller added.
Lennar expects to deliver between 22,500-23,000 homes in Q4 with an average price of $425,00 per home. In Q4 2023, Lennar delivered to 23,795 homes for on average $441,000.
LEN shares ended Thursday’s session at an all-time high, amid a 28% gain in 2024, according to MarketSurge charts. The S&P 500 stock was last below its 200-day moving average in early July and has rallied 36% since then.
On Jan. 9, Lennar hiked its annual dividend by 50 cents to $2 per share. The homebuilder also authorized an increase to its stock-repurchase program to $5 billion.
“Given the strength of our balance sheet, our strong cash position and our operating strategy driving cash flow, we are focusing more of our capital allocation on maximizing total shareholder returns,” co-Chief Executive Miller said at the time.
Overall, the IBD-tracked Building-Residential/Commercial industry group surged 60% in 2023. This year, the 22 stocks in the group have collectively advanced 35%.
KB Home (KBH) traded in a buy zone Thursday, slightly above an official 88.31 entry. Meanwhile, Toll Brothers (TOL) and D.R. Horton (DHI) are also both trading around all-time highs. Toll Brothers hit 154.62 on Wednesday while DHI shares on Thursday had an intraday high of 199.85.
Lennar stock has a 93 Composite Rating out of a best-possible 99. The S&P 500 component also has a 91 Relative Strength Rating and a 96 EPS Rating.
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