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Why Lennar Corporation Stock Just Popped 11%

By Rich Smith - Mar 17, 2021 at 1:35PM

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Lennar crushes earnings estimates and creates a new rental business.

What happened

Last week, investment bank RBC Capital downgraded shares of Lennar Corporation (LEN 4.20%) to "sector perform," warning that the homebuilder stock's period of "strong" year-to-date performance was at an end.  

Boy, was it ever wrong about that!

Lennar stock is popping this afternoon, up 10.8% as of 1:05 p.m. EDT, after the company reported strong fiscal first-quarter results that included pro forma profits of $2.04 per share (Wall Street had expected only $1.71) and sales of $5.3 billion, also ahead of estimates.

Green arrow trending up over the numerals 2021

Image source: Getty Images.

So what

Net income at the homebuilder was even better than those pro forma results might suggest, with Lennar earning $3.20 per share on the bottom line, up more than 150% year over year, and revenue up 18%. Lennar delivered (closed on) 19% more homes in Q1 2021 than it did in Q1 2020 -- and recorded orders for 26% more homes in this year's first quarter than 2020's.  

Now what

Lennar executive chairman Stuart Miller noted that after a "housing shortage driven by 10 years of production shortfall ... [and] in spite of a recent uptick in interest rates, the housing market remains very strong across the country."

Management forecasts that over the course of 2021, it will deliver between 62,000 and 64,000 new homes and earn a 25% gross profit margin on their $400,000 average selling price. (That makes for nice math, by the way. For every home Lennar sells, it will earn $100,000 gross profit.)

Additionally, Lennar announced this morning that it will keep sales booming by partnering with Centerbridge, Allianz Real Estate, "and other high quality institutional investors" to create a new "Upward America Venture" that will buy single-family homes and then rent them out. Lennar anticipates that this venture will buy more than $4 billion worth of such homes, creating a sort of captive audience for the detached homes and townhomes it builds -- and a new revenue stream for Lennar.  

No wonder investors are cheering.

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