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Lennar now expects to deliver between 80,000 and 81,000 homes this year, down from its earlier goal of at least 82,000. This is a direct result of the Federal Reserve raising interest rates, which makes mortgages more expensive and forces some buyers to walk away or delay their purchase.
This matters because Lennar relies on high volume to keep its construction costs low and its cash moving. Falling short of its delivery targets suggests that even the aggressive incentives Lennar offers, like paying down a buyer's mortgage rate, are not enough to fully offset the pressure of the current housing market.
Source: WSJ
Lennar reported earnings of $1.23 per share on $8 billion in revenue, both coming in lower than what analysts expected. The most concerning detail was a 9 percent drop in new home orders. This suggests that even with the company offering incentives like mortgage rate buy-downs, where a builder pays to lower a buyer's interest rate, high borrowing costs are still keeping many people from signing contracts.
While the market is tough, Lennar kept its profit margins on home sales at 15.8 percent. This is a key number because it shows the company is not just slashing prices to move houses. However, with the backlog of homes waiting to be built also shrinking, the company will need to see a pickup in buyer interest to keep its construction machine running at full speed.
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Source: 8-K filing
The Federal Reserve, the central bank that sets borrowing costs for the country, raised interest rates today. At the same time, Treasury yields, which often dictate what banks charge for home loans, also climbed. For a homebuilder like Lennar, this is a direct challenge because it makes it more expensive for people to buy a home and forces the company to spend more on incentives to help buyers afford their monthly payments.
Source: WSJ
Lennar reports its latest results today. Analysts expect the company to report revenue of about 8.3 billion dollars. Beyond the headline numbers, the focus is on how much Lennar is spending on incentives like mortgage rate buy-downs, where a builder pays to lower a buyer's interest rate, to keep sales moving. We are also watching for progress on the shift to an asset-light model, which involves owning less land directly to free up cash for shareholders.
Wells Fargo nudged its price target down to $80 from $85, keeping its rating at the equivalent of a hold. This move brings the firm's target roughly in line with where the stock trades today. Other analysts have an average target of about $85. Lennar is scheduled to report its latest quarterly results on Wednesday. This small target change suggests analysts are waiting to see how well the company is managing high mortgage rates and whether its plan to own less land is still freeing up cash as intended.
Source: Wells Fargo
Management has missed expectations in six of the last eight quarters. This suggests they are struggling to forecast demand as rising interest rates keep potential homebuyers on the sidelines.
| Expectation | |
|---|---|
| EPS | $1.98 |
| Revenue | $9.44B |