“Let’s look at the home builders I was optimistic on Monday when kb homes had their numbers out, but Lennar had their quarterly report and it was disappointing. Net orders around 27%. That was a little disappointing.” Power Lunch 3/31/2009
Shares of home builder Lennar (LEN) are down double digits today after the company released 1st quarter results. The results were a mixed bag because, excluding one time charges, the company very narrowly beat analysts EPS expectations. Excluding charges, the company lost $.63 per share while expectations were for a penny worse. Including the charges the company lost $.98 in the quarter or $155.9 million. The write-down was because of falling land values and inventory values.
There were some indications that things had turned in the home builders based on some good results from KB Homes (KBH) and existing home sales were much better than expected recently. However, housing starts have fallen off quite a bit, which is obviously a key indicator for home builders. Furthermore, cancellations were 21%, better than last year but still not a promising indicator. Lennar’s average selling price slipped 12% to $244,000, and new orders declined 28 percent. These results suggest were a reminder that the remainder of 2009 would likely be no picnic for the housing market, even if the declines are moderating.
As of this week’s report, we are reiterating our Overvalued rating on Lennar. We cannot recommend a stock that has negative earnings even if they are moderating to some extent. Revenue has fallen off dramatically in the last two years, and many of the macro economic indicators continue to suggest that there is a lot of excess inventory for housing and Lennar. That is a really bad sign for home builders, but more than that the fundamentals do not support the recent appreciation in the shares and even at these levels we think shares are not cheap.