Homebuilder Lennar (NYSE:LEN) will report Q1 2007 financial results on Tuesday, March 27.

What analysts say:

  • Buy, sell, or waffle? Six of the 16 analysts covering Lennar still say buy (as they did last time out), three now say sell, and the remaining seven say hold.
  • Revenues. Revenues are expected to tumble another 23%, as the languid housing market continues to have little traction.
  • Earnings. Although a profit of $0.43 per share is expected -- unlike the loss the company reported last quarter -- that would still be off 73% from the year-ago period.

What management says:
While investors might be hoping that the surprisingly strong February existing-home sales numbers point to the recovery everyone's been hoping for, they were more likely a product of the warmer weather. Current market conditions include a crisis in the subprime mortgage-lending business, tighter mortgage lending practices, a glut of unsold homes already on the market, and a rising rate of foreclosures.

Lennar CEO Stuart Miller anticipates that Lennar can "meet or exceed our 2006 earnings" by pinning hopes for recovery on the backs of broad, favorable economic conditions, including continued strong employment numbers; traditional, seasonal improvements in housing; and low interest rates. A tall order, indeed.

What management does:
The soft pricing structure of housing these days will continue to pressure Lennar's margins. Lot option contracts, where builders can control large amounts of land for just a few dollars down, continue to be a central way for Lennar and others like Motley Fool Hidden Gems recommendation MDC Holdings (NYSE:MDC), Hovnanian (NYSE:HOV), Ryland (NYSE:RYL), and others to have a supply of land to build for the future. Lennar added a new partner to its LandSource lot option joint venture that gave it an immediate $700 million cash infusion; this will also result in $170 million of earnings this year, and potentially $400 million in the future.

The new partner will also bring to the table $2.6 billion worth of assets and 4,000 homesites that were repriced to reflect current market values. These depressed-price values should enable Lennar to leverage them in future sales, helping to support its margins.

Margin

11/05

02/06

05/06

08/06

11/06

Gross

16.0%

15.8%

15.3%

13.8%

9.8%

Operating

15.6%

15.5%

14.9%

13.2%

8.6%

Net

9.8%

9.7%

9.2%

8.0%

3.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While it doesn't appear the weak housing market will be turning around soon, it also looks like the worst of it was hit back in November of last year. Prices are still soft, there is still a lot of inventory that needs to be absorbed, and tighter controls on lending practices signal the end of the easy-money days. Yet Lennar is not standing still or allowing opportunities to pass by. Although it was one of those builders that was aggressively slashing the prices of its homes and offering amenities to ensure that sales closed, it also has a strong balance sheet. Improvements in areas like new orders might be hard to come by this quarter, but look for slowing rates of decline to see whether the turn is coming.

Related Foolishness:

Lennar has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

MDC Holdings is a recommendation of Motley Fool Hidden Gems. See why this homebuilder might be different than the others when you try out the small-cap investment service with a 30-day guest pass.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.