Lennar Corp. (NYSE:LEN) stock fell 1.96% (As on September 20, 11:18:34 AM UTC-4, Source: Google Finance) after the KeyBanc Capital Markets upgrade was from Underweight to Overweight with an $89 price target. Analyst Kenneth Zener said that homebuilders, which have underperformed this year, tend to rebound sooner and more sharply than the broader market. The analyst stated that since their January 2022 downgrade, fundamentals are weaker, credit policy is tighter, and builder valuations are lower, but the essence of their call “lies between Jessie Livermore (‘There is a time to go long, a time to go short, and a time to go fishing’) and Wayne Gretzky (‘Skate to where the puck is going, not to where it is’).”
Meanwhile, Revenues from home sales increased 33% in the second quarter of 2022 to $8.0 billion from $6.0 billion in the second quarter of 2021. Revenues were higher primarily due to a 14% increase in the number of home deliveries to 16,549 homes from 14,493 homes and a 17% increase in the average sales price to $483,000 from $414,000. Gross margin on home sales were $2.4 billion, or 29.5%, in the second quarter of 2022, compared to $1.6 billion, or 26.1%, in the second quarter of 2021. The new orders grew 4% compared to last year’s second quarter. During the second quarter of 2022, an increase in revenues per square foot was offset by an increase in costs per square foot primarily due to higher material and labor costs. Overall, gross margins improved year over year as land costs remained relatively flat while interest expense decreased as a result of the Company’s focus on reducing debt. Operating earnings for the Financial Services segment were $103.9 million in the second quarter of 2022, compared to $121.3 million in the second quarter of 2021. The decrease in operating earnings was primarily due to lower mortgage net margins driven by a more competitive mortgage market, partially offset by an increase in rate lock volume and an increase in profit per order in the title business. At May 31, 2022, the Company had $1.3 billion of Homebuilding cash and cash equivalents and no borrowings under its $2.575 billion revolving credit facility, thereby providing $3.9 billion of available capacity.
For the third quarter, the company expects deliveries to be between 17,000 to 18,500 homes and boundaries for gross margins to be between 28.5% – 29.5%. For the full year, the company’s delivery expectations is at approximately 68,000 homes.