On Thursday, RBC Capital maintained its underperform rating on shares of Lennar Corporation (NYSE:LEN), with a steady price target of $145.00. The firm's outlook reflects concerns over the company's gross margin percentage (GM%) and selling, general and administrative expenses percentage (SG&A%) projections, which are anticipated to impact future earnings.
The analyst noted a decrease in expected earnings per share (EPS) for the fiscal year 2024 to $13.92, a 2% drop, and for the fiscal year 2025 to $14.83, which is down by 3%. This revision is attributed to poorer than expected GM% and a persistent rise in SG&A%. Despite a lower than anticipated third-quarter GM% guide, management's decision to keep its full-year guidance unchanged signaled that the recent adjustments might not sufficiently address the underlying issues.
Lennar's implied quarter-over-quarter increase in the fourth quarter is seen as improbable by RBC Capital. The firm also pointed out that the recent high SG&A% seems to be more persistent in the near term, which could further pressure the homebuilder's profitability.
In other recent news, Lennar Corporation has seen a series of adjustments in its stock target from various firms. BTIG, for instance, lowered its target for Lennar to $175, while Barclays reduced its target to $177, and Evercore ISI cut it to $237. However, all firms maintained positive ratings on the stock. These adjustments follow Lennar's Q2 earnings report, which showed earnings per share of $3.45, surpassing estimates from both BTIG and consensus.
The company's plans to handle $6-8 billion in assets, exceeding expectations, were also highlighted. Despite mixed demand conditions, most of Lennar's key markets remain favorable. However, the Q3 guidance for 2024 was somewhat underwhelming, with orders, average selling price, and margins not meeting anticipated strength. Yet, Lennar's targets for full-year 2024 volume and margin remain unchanged. The company is also progressing towards a more asset-light structure, aimed at increasing capital returns to shareholders. This includes an expansion of its land spin to between $6 billion and $8 billion, and reducing the size of its on-balance sheet multifamily assets.
InvestingPro Insights
Amidst RBC Capital's cautious stance on Lennar Corporation, real-time data from InvestingPro provides a broader perspective on the company's financial health and market position. Notably, Lennar holds a market capitalization of $41.02 billion, reflecting its significant presence in the Household Durables industry. With a P/E ratio of 10.1 and a slightly lower adjusted P/E ratio for the last twelve months as of Q2 2024 at 9.87, the company trades at a valuation that is appealing to some investors, especially considering its high shareholder yield and the fact that it has maintained dividend payments for 47 consecutive years.
InvestingPro Tips highlight that Lennar's cash flows can sufficiently cover interest payments and that its liquid assets exceed short-term obligations, showcasing a degree of financial stability. Additionally, analysts predict the company will be profitable this year, having been profitable over the last twelve months. This aligns with the company's revenue growth of 6.34% over the same period, indicating a steady business expansion. However, with five analysts revising their earnings downwards for the upcoming period, investors should be aware of potential headwinds.
For those looking to delve deeper into Lennar's financial metrics and gain additional investment insights, there are more InvestingPro Tips available, including analysis on the company's volatility and long-term returns. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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