Winter Freezes Housing Starts in February
Housing starts in the United States plunged 17% month-over-month to an 897,000 pace in February 2015, the lowest level since January 2014.
Lennar sees allocation in major sector-specific homebuilder ETFs such as the SPDR S&P Homebuilders ETF (XHB). XHB has a 3.36% stake in Lennar.
Lennar’s valuation is in line with its historical valuation. For three years, its price ranged from 21.5x to 9.8x of EPS and a current PE multiple of 17.7x.
Lennar’s strategy is expected to be conservative. The company will downsize where possible and cut costs and SG&A to maintain a healthy cash balance.
Lennar (LEN) is looking to diversify its revenue stream and take on the competition. To accomplish this, Lennar has invested in new businesses.
Lennar’s return on equity was 14.37% as of November 2014. That’s the highest RoE among homebuilders in the industry.
The housing market crash affected Lennar’s ability to pay dividends, which went down to $0.04. Since then, it has maintained consistent dividends.
Lennar’s cash position, 10% of its asset base, finances homebuilding, Lennar Financial Services, Rialto, Lennar Multifamily, and general operating needs.
Lennar’s debt-to-equity ratio was 0.74 in 2007. It reached 1.25 at the end of 2014. The ratio seems high compared to its peers.
Buyers are reluctant to pay higher prices, and builders have to offer incentives, which reduces margins. Lennar’s higher margins will not be sustainable.
Cost of homes sold is the highest at 85.6% of Lennar’s homebuilding cost structure. This is followed by SG&A at 12% and cost of land sold at 2.4%.
Buoyed by the robust revenue and gross margin growth, Lennar (LEN) reported a whopping earnings growth of 60.9% during the period from 2010 to 2014.
At 31.1%, Lennar has reported higher revenue growth than most of its peers.
Lennar (LEN) delivered 21,003 homes in 2014 at an average selling price of $326,000. There were 18,290 deliveries in 2013 at an average price of $290,000.
Since 1980, Lennar has grown aggressively, mainly through its acquisition growth strategy. The company has acquired more than 35 companies in its lifespan.
As of November 2014, Lennar had 35 unconsolidated joint ventures compared to 270 in 2006. Investment in unconsolidated entities was $656.8 million.
Lennar’s land acquisition process includes acquiring land from individual land owners, developers, or homebuilders. Lennar also creates JVs to acquire land.
Lennar’s market segmentation is primarily first-time, move-up, and active adult homebuyers in areas ranging from urban infill to golf course communities.
Lennar’s homebuilding segment includes the construction and sale of single-family attached and detached homes in a variety of environments.
Lennar’s (LEN) four main business segments include Homebuilding, Lennar Financial Services, Rialto, and Lennar Multifamily.
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