Key point in this equity note:
- Lennar announces strong outlook for new orders smashing estimates in a signal that demand is accelerating again despite worries of high interest rates.
- US homebuilders will continue to see strong demand in the years to come as a decade of production deficits have caused a chronic supply shortage.
Strong outlook for new orders
The US homebuilder Lennar reported last night FY23 Q2 results (ending 31 May) with revenue at $8bn vs est. $7.3bn and adjusted EPS of $2.91 vs est. $2.31 driven by strong execution and a strategy of offering more affordable houses amid higher interest rates. Lennar published Q3 outlook on new orders in the range 18-19,000 vs est. 15,700 as demand is beginning to accelerate again as the consumer has come to accept the “new normal” in terms of financing conditions for housing. Investors were excited about the outlook sending Lennar shares up 2% in extended trading.
While revenue is expected in the current fiscal year to land around $29.7bn down from $33.7bn the year before, the share price is hovering around all-time highs suggesting the equity market is bullish on the outlook for US homebuilders. Lennar has zero net debt and a forward expected free cash flow yield around 6% suggesting a balanced valuation against the economic backdrop. New orders in Q2 hit 17,812 which was a new record highlighting the strength in the US economy.