Friday's housing news didn't exactly encourage optimism in home-building investors. Sales of new single-family homes declined 10.5% year over year, the steepest drop in nine years. On that note, we begin our preview of the fiscal Q1 2006 earnings news due out from Lennar (NYSE:LEN) tomorrow.

Wall Street Wisdom:

  • General consensus. Seventeen analysts follow Lennar. Are they in denial? Ten of them rate the stock a buy, six a hold, and only one a sell.
  • Revenues. Analysts expect Lennar to post quarterly sales growth of 27% tomorrow, to $3.05 billion.
  • Earnings. Earnings are expected to come in 32% stronger, at $1.54 per share.

Margin watch:
Like rival KB Home (NYSE:KBH), which we looked at last week, Lennar's margins have been marching steadily upwards in recent quarters. The rolling gross is up 220 basis points, 120 of which fell all the way down to the bottom line.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

13.9

14.4

14.5

14.7

15.4

16.1

Op.

13.2

13.9

14

14.3

15

15.7

Net

8.6

9

9

8.9

9.3

9.8
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.

Foolish lookout:
Lennar hasn't given any guidance on its progress since we last heard from it on fiscal 2005's end-of-year status back in December. Even then, the company's earnings report didn't say much; given its strong backlog of $6.9 billion in business, the company expressed confidence in achieving targeted profits of $9.25 in profit per share this year.

For more recent clues, let's look at what KB had to say last week. There, backlog was increasing, but net new orders were down year over year. Moreover, KB saw an increase in cancellations of home orders. That suggests that we should be taking backlogged business with a grain of salt -- perhaps not just at KB, but at Lennar as well.

Competitors:
Lennar's competitors are well-known. In addition to KB, they include Centex (NYSE:CTX), DR Horton (NYSE:DHI), and Pulte (NYSE:PHM).

Fool contributor Rich Smith does not own shares of any company named above.