Can Lennar Earnings Grow Faster Than Those of PulteGroup and KB Home?

Lennar (NYSE: LEN  ) will release its quarterly report on Wednesday, and investors have been worried about the homebuilder's prospects throughout the second half of 2013. Like rivals KB Home (NYSE: KBH  ) and PulteGroup (NYSE: PHM  ) , Lennar has faced the potential challenge of higher mortgage rates, which have scared shareholders into thinking that homebuilding activity will necessarily have to fall as homes become less affordable.

Despite its recent declines, Lennar has been a big beneficiary of the recovery in housing during 2012 and 2013. With a nationwide scope that includes both coasts as well as Texas, Lennar has reaped its share of recovery-based gains in many of its key markets. But as much as homebuilders compete against each other, the larger threat that faces Lennar, KB Home, Pulte, and just about every other company in the business comes from the macroeconomic forces that affect the entire industry. Can Lennar keep itself growing even if the huge tailwinds that helped the housing market recover finally start to dissipate? Let's take an early look at what's been happening with Lennar over the past quarter and what we're likely to see in its report.

Stats on Lennar

Analyst EPS Estimate

$0.62

Change From Year-Ago EPS

10.7%

Revenue Estimate

$1.88 billion

Change From Year-Ago Revenue

39.0%

Earnings Beats in Past Four Quarters

4

Source: Yahoo! Finance.

Will Lennar earnings growth outpace its rivals?
Analysts have had mixed views about Lennar earnings in recent months. They've raised their November-quarter estimates by $0.02 per share, but they've cut back on their full-year fiscal 2014 projections by double that amount. The stock has stayed relatively stable, rising less than 1% since mid-September.

Lennar started off the quarter well, with solid August-quarter results that led many to feel much more optimistic about housing even in light of rising interest rates. Earnings per share jumped 35% on a 46% jump in revenue. Home prices climbed 13%, more than offsetting smaller jumps in expenses. CEO Stuart Miller pointed to the lack of supply of both single-family and multi-family homes as driving gains of 37% in deliveries and 32% in order backlogs, and cited that they would likely remain long-term driving forces in helping support the industry's growth in future years.

Yet even with those long-term tailwinds helping Lennar's fundamental prospects, shorter-term investors remain focused on the potential impact of higher rates. PulteGroup actually saw a big decline in new orders, and KB Home has weak sales as well. While it's tempting to conclude that Lennar is outpacing Pulte and KB Home from a competitive advantage, it's possible that their poor performance reflects a changing trend that could eventually affect Lennar as well.

Still, Lennar has been offering incentives to counteract any problems stemming from higher financing costs, helping to bridge any affordability gap and spur sales. In addition, a big part of Lennar's gains comes from being in the right markets. Lennar is an important builder in key markets like Arizona, Nevada, and California, which have been among the fastest-growing areas in the nation.

In the Lennar earnings report, watch to see if the homebuilder is able to keep its order and backlog growth soaring. If Lennar can surprise investors positively again, it could finally put to rest fears that the housing recovery will inevitably fade when the Fed pushes rates higher.

Is Lennar the best stock for your portfolio?
Lennar has some solid potential, but there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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