Lennar Corp (LEN)

NetscribeHomeBui (< 20) Submitted: 5/23/07 9:10 AM : Start Price: $44.59 LEN Score: 50.94

Lennar recently LandSource joint venture admitted MW Housing Partners as a new strategic partner, resulting in cash distribution of $700 million and 16% ownership. Company recognized a pretax gain of $175.9 million in Q1 2007 and could potentially recognize an additional $400 million in future years.





For three months ended February 2007, its revenues decreased by 14% to $2.79 billion due to decrease in sales from homebuildings due lower number of home deliveries particularly in Homebuilding central & west segments, decreased average sales price of homes delivered and lower sales from the financial services division. Net income from continuing operation decreased by 73% to $68.6 million reflects lower margins. New home deliveries reduced by 2.84% to 9.04 million homes primarily due to decrease in the Central and West homebuilding segments.





While the future also does not give a luring picture as the backlog is just half the amount of 2006, standing at 9.7 million homes, and the impact has come from all segments. Also the new orders which are the contracts that the company has entered during the quarter have also fallen by 27.17% to 7.1 million homes displaying a dampening effect from all operating divisions. On the contrary the company’s net homebuilding debt to total capital at 28.6% improved from 35.2 % on y-o-y basis strengthens the balance sheet that will position it well for success as market conditions recover.





Earlier company said margin in the backlog will result in lower profitability in H1 2007, but it believes to meet or exceed fiscal 2006 EPS of $3.69 if the current environment of healthy economy continues, and market for new homes demonstrates seasonal improvement. However it later announced that it does not expect to achieve its previously stated 2007 earnings goal which reflects the lack of enthusiasm among investors. Although the company’s balance sheet remains strong with healthy homebuilder’s debt to total capital ratio and also the recent joint venture adds in further optimism. But current Homebuilder’s market scenario and the company’s recent and future profitability does not provide any ray of hope at least in the near future.

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