Trading On margin

Supply chain issues tarnish Lennar’s fourth quarter

Lennar (NYSE 🙂 had a great quarter, but we have one of those situations where the results weren’t inspiring and revealed systemic rot and headwinds. The company saw high double-digit annual growth and record results, but it could have been even better without the increased costs.

Worse yet, forecasts for next year suggest business will continue to be constrained by headwinds producing lower-than-expected margins and putting pressure on the company’s revenue and profit growth.

The bottom line is that demand is still strong, housing shortages persist, and supply chain issues will eventually be resolved. The only question is when. In our view, this is an opportunity for the company to beat its forecast and guide the market higher at some point over the next two or three quarters.

Executive Chairman Stuart Miller said:

“Our record fourth quarter results reflect both the continued strength of the housing market across the country and the continued shortage of housing supply due to limited land, labor and housing constraints. supply chain, and 10 years of production deficit. “

Lennar stumbles upon poor results and advice

Lennar for a 23.4% gain from last year and a 20.9% increase from 2019. The gains are fantastic but are below the consensus by 90 basis points and are compounded by weakness in forecasts. The company says deliveries are up 11% and boosted by a 14% increase in selling price.

New orders are up 2%, reflecting the impact of these higher selling prices as the value of new orders increased 16%. Order books are up 26% in volume and 45% in value, indicating continued strength if brought under control by labor and materials.

Going down the ratio, the company could cut the gross margin per house by 300 basis points and leverage sales strength to 150 basis points. This resulted in higher than expected margins on an adjusted basis, but a decline of 50 to 100 basis points is expected over the next year. Ultimately, GAAP of $ 3.91 is up 39% from last year, but missed the consensus by $ 0.23 as adjusted $ 4.36 beat by $ 0.21 .

As for forecasts, the company expects to deliver more than 67,000 homes and sales of $ 30.8 billion for 13% year-on-year growth. That check mark is higher than the 12% increase in shipments produced this year and could be aggressive in light of labor issues and other headwinds.

Marketbeat.com’s consensus estimate expects growth of just over 18%, providing another headwind for the market. Based on the forecast, the company will need to raise prices an additional 6% to make up the difference, and the price increases are already hurting demand.

The technical outlook: Lennar risks a 20% correction

Lennar shares hit a new high the week before the results were released and began to pull back before the news even hit the market. Now, down 5% early in the trade, it looks like this stock could correct 20% or more before reaching a firm support level.

There are short term supports between the current stock and the $ 94 mark, but we don’t see them holding up with indications as weak as they are. If the stock falls below $ 94, it is very possible to drop to the $ 80 level. Our short term support goals are $ 104 and $ 100.

Lennar’s daily stock chart.

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