A "return to market seasonality" for one of the nation’s largest homebuilders still bodes well for the company and its investors since we’re in an extended homebuilding season perhaps like none other in quite some time.
That’s the big takeaway from 3Q21 results and forecasts going forward from Lennar Corp. (NYSE: LEN). The Miami-based company reported soaring income and positive performance in nearly every major metric, with one exception.
It didn’t deliver as many new homes as expected, but supply constraints, not demand, were cited as the cause. And, of note to investors in the homebuilding sector in general, Lennar executives expect those issues to continue and did not predict an easing.
Still, going forward, "In general, the market has moderated from being extremely hot to a strong market that is returning to normal seasonal trends," said Rick Beckwitt, the company’s co-president and co-CEO, in Lennar’s 3Q earnings call on Sept. 21.
A strong summer season indeed
Here are just a few of the highlights from Lennar’s earnings report covering July, August, and September: revenues up 18% from 3Q20, net earnings more than double last year’s third quarter, net margin on home sales of 20.3% compared to 15.1%, no borrowings under the company's $2.5 billion revolving credit facility, new orders up 5%, and new orders dollar value up 19%.
About the only downer, the company said, was delivering only 15,199 homes, up 10% from last year’s third quarter but still 600 homes under guidance.
Here’s what Lennar’s executive chairman, Stuart Miller, had to say about that in the earnings call: "While at Lennar, we are certainly not immune to supply chain disruption, we are simply not used to missing either. … The supply chain for both land and construction is significantly stressed, and that will continue into the fourth quarter and beyond."
What’s good for this goose could be good for all who gander at this segment
Demand for homes, new and existing, continues strong, and big operations like Lennar and its major competitors -- such as PulteGroup -- are riding that wave.
The big three rating services also like what they see. Lennar noted that S&P just upgraded the company to investment-grade, making it unanimous.
Lennar stock was trading at $100.26 midafternoon on Thursday, Oct. 28, still 9.36% below its 52-week high of $110.61 from May 10 and well off its 52-week low of $69.41 from last Oct. 30. It had a market cap of $31.0 billion at that price and was yielding 1.00% from its annual dividend of $1.00 per share.
At that valuation, this might be a good time to consider jumping in. If homebuilders can perform like this while their ability to deliver is so constrained, that could really bode well for them when supply catches up with demand. That could lower the profit per unit some, of course, but volume might well make up for that.
And, speaking of profit per unit, The Wall Street Journal just reported that Lennar has partnered with a start-up to build a community of 100 3D printed homes near Austin, Texas, that would be the first use of this technology at that scale in the country.
Besides cost savings, the use of 3D techniques -- in this case to produce interior and exterior wall systems -- can help alleviate the shortage of people able to do that kind of work in traditional construction.
"Skilled tradesmen are a dying breed," said Eric Feder, president of Lennar’s LenX business, told the newspaper in the Oct. 26 article. "So there have to be alternative building solutions to help with this labor deficit."
That could help make for many more successful earnings seasons to come for this segment of real estate investing.