Lennar Has To Cut Costs Despite Promising Demand To Weather Economic Uncertainty, Says Analyst

Raymond James analyst Buck Horne reiterated a Market Perform rating on the shares of Lennar Corp LEN after the review of 4Q22 results.
Lennar reported 4Q22 GAAP EPS of $4.55, which included $0.25/share of mark-to-market tech investment losses and $0.22/share of land/backlog/option charges. The company expects 1Q23 EPS to be in the range of $1.40-1.70.
The analyst said it is seeing some positive demand signals in recent weeks, including increased traffic to its communities and website.
Also Read: Housing Is Still Hot, But It's Cool Enough To Touch, According To New Redfin Data
The analyst added that LEN also anticipates its 1Q23 homebuilding gross margin of 21% to be the low point of FY23, as benefits from lower construction costs and lumber prices flow through inventory.
The impact of surging mortgage rates has continued to be felt unevenly across different regions.
Given the amount of uncertainty in the housing market, management refrained from providing full FY23 guidance and chose to only expand on its expected deliveries of 60,000 – 65,000 homes.
While successfully finding buyers in a difficult environment, the pace at which Lennar is lowering home prices has several effects, said the analyst.
Acknowledging some very modest green shoots as mortgage rates have dropped to the mid-6% range recently, the analyst said it still appears many potential buyers remain sidelined with growing expectations of further home price reductions in 2023.
Related: Home Prices Are Dropping: Is This A Good Time To Buy A House?
According to the analyst, the positive signs included the existing pent-up demand for homes, additional cost savings to stabilize margins and work on monthly affordable payments for buyers.
The analyst thinks near-term risks to the macro outlook are substantial, and additional price cuts will likely prove necessary in 2023.
Price Action: LEN shares are trading lower by 0.75% at $91.51 on the last check Monday.
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