Lennar Beats Earnings Expectations – Shares Slide

Lennar Corporation (LEN) shares plunged 4.24% in extended-hours trading Monday despite the nation’s largest homebuilder surpassing Wall Street’s quarterly earnings estimates.

The Miami-based home construction company disclosed a third quarter (Q3) adjusted profit of $2.12 per share, hammering past analysts estimate of $1.51 a share. Moreover, the bottom line grew 33% from a year ago and has surpassed analyst EPS forecasts for five consecutive quarters. Meanwhile, sales of $5.87 billion topped the consensus forecast by 10.10% and came in slightly ahead of the $5.86 billion figure reported a year earlier.

As of Sept. 15, 2020, Lennar stock has a market capitalization of $24 billion, issues a modest 0.65% dividend yield, and is up 33.54% over the last three months. Year to date (YTD), the shares trade over 40% higher.

Home Construction Boom

The homebuilder’s executive chairman Stuart Miller credited the better-than-expected results on record low interest rates and tight supply in the housing market. What’s more, Miller sees these macro trends continuing. “Given strong demand and limited new and existing home inventory, we expect home sales to remain strong for the foreseeable future,” he said in a statement accompanying the earnings call, per Barron’s.

Management expects new orders for the current quarter of 13,800 to 14,300 and deliveries of between 15,500 to 16,000. This compares to 13,054 new orders and 16,391 deliveries in the same quarter last year.

Wall Street View

Analysts remain overwhelmingly bullish on Lennar based on favorable industry tailwinds such as low borrowing costs and changing lifestyle trends brought about by the pandemic. The stock receives 9 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 10 ‘Hold’ ratings. Currently, no research firms recommend selling the shares. Price targets range from as high as $95 to as low as $62, with the average target pegged at $79.97. This implies a slight 1.2% premium to Monday’s $79 close.

Technical Outlook and Trading Tactics

Since the 50-day simple moving average (SMA) crossed above the 200-day SMA in early July to indicate a new uptrend, the stock has continued rising. Therefore, active traders should view any profit taking as a buying opportunity. Look for entries at the $71 level, where the price has flipped previous resistance into support. Those who take a position should protect capital with an initial stop-loss order placed somewhere beneath this month’s low at $71.34 and trail it under each successive higher swing low.