On Monday, Citi updated its outlook on Lennar Corporation (NYSE:LEN) shares, a leading home construction company, raising the price target to $196 from $164 while keeping a Neutral rating on the stock. The adjustment follows Lennar's third fiscal quarter performance, which saw the company's shares dip by 5% due to a gross margin miss and an estimated 200 basis points reduction in fourth fiscal quarter gross margin guidance.
The lower gross margins were attributed to increased incentives that Lennar offered to maintain sales pace in the face of softer demand and fewer community openings, which were delayed by entitlement processes. Despite the softer gross margins, Lennar has managed to leverage selling, general, and administrative expenses (SG&A) by reducing reliance on third-party brokers.
Citi has raised its fiscal year 2024 earnings per share (EPS) estimate for Lennar by $0.30, reflecting the SG&A leverage and one-time benefits in the multifamily segment observed in the third fiscal quarter. Moreover, the estimates for fiscal years 2025 and 2026 have been increased by $0.20 and $0.30, respectively, due to an improved volume outlook. Lennar guided a 10% year-over-year increase in volumes for fiscal year 2025, which is higher than the market's consensus of mid-single-digit percentage growth.
The revised price target factors in a 2.0 times next twelve months tangible book value (NTM TBV), up from 1.7 times, considering a lower interest rate environment and a potentially stronger macroeconomic outlook. Despite the raised target, Citi's stance remains Neutral on Lennar's shares.
In other recent news, Lennar Corporation has seen mixed financial forecasts and strategic progress. RBC Capital Markets adjusted its outlook on Lennar, raising its price target from $145.00 to $160.00 but maintaining an Underperform rating.
The firm anticipates a slight decrease in the fourth quarter 2024 earnings per share (EPS) estimate, yet expects a 5% increase in the fiscal year 2025 EPS estimates due to higher expected home deliveries and better utilization of selling, general, and administrative expenses.
In contrast, Goldman Sachs (NYSE:GS) maintained a Neutral rating on Lennar's stock with a price target of $190.00, acknowledging Lennar's strategy to generate more cash, but noting that the current economic environment poses challenges to near-term profitability.
Furthermore, Lennar's recent third-quarter results show an 8% increase in home starts and a 16% rise in deliveries, with a projected 10% growth in home deliveries for 2024.
Despite headwinds like rising sales incentives due to high interest rates and a slightly lower than expected gross margin in Q3, Lennar's financial services segment reported operating earnings of $144 million, with the multifamily segment generating $79 million. These recent developments indicate Lennar's ongoing commitment to strategic growth and operational efficiency.
InvestingPro Insights
In light of Citi's updated outlook on Lennar Corporation (NYSE:LEN), examining the company through the lens of InvestingPro's data and insights offers additional context for investors. With a market capitalization of approximately $50.88 billion and a price-to-earnings (P/E) ratio of 12.08, Lennar stands out as a significant player in the Household Durables industry. The company's P/E ratio remains stable, with a slight adjustment to 12.04 when looking at the last twelve months as of Q3 2024.
Lennar's financial health is underlined by a robust revenue growth of 9.04% in the same period, showcasing its ability to expand amidst market challenges. Furthermore, the company's stock has experienced a strong return over the last three months, with a 20.64% increase, and its year-to-date price total return stands at an impressive 23.47%. These figures highlight Lennar's robust performance in the recent past and may be of particular interest to investors looking for growth opportunities.
Among the InvestingPro Tips, two notable points stand out: Lennar holds more cash than debt on its balance sheet, which is a reassuring sign of financial stability, and the company has maintained dividend payments for 47 consecutive years, demonstrating a commitment to shareholder returns. These factors, combined with the company's ability to cover interest payments comfortably with its cash flows, may provide investors with additional confidence in Lennar's financial management and long-term prospects.
For those seeking further insights, there are additional InvestingPro Tips available, which could offer a deeper understanding of Lennar's positioning and future potential. The full suite of tips can be explored at InvestingPro's dedicated page for Lennar: https://www.investing.com/pro/LEN.
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