Lennar Corporation LEN is set to report first-quarter fiscal 2016 results on Mar 29, before the market opens. Last quarter, it had posted a positive earnings surprise of 8.04%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Lennar delivered outstanding operating results in fiscal 2015. Backed by demand momentum, we expect strong volume trends to continue into the fiscal first quarter. This, along with higher selling prices, should provide ample support to both the top and bottom line.
However, Lennar’s gross margins have remained weak in past few quarters due to rising land and construction cost amid moderating home price growth. We do not expect much improvement in first quarter either as land and labor costs continue to rise.
Besides, labor shortages, rising land, labor and construction cost and sales slowdown in Houston are expected to keep the housing momentum in check in the to-be-reported quarter.
Earnings Whispers
Our proven model does not conclusively show that Lennar is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Lennar ESP is -3.85% as the Most Accurate Estimate stands at 50 cents, while the Zacks Consensus Estimate is higher at 52 cents.
Zacks Rank: Although Lennar’s Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes a surprise prediction difficult.
Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some companies in the construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat:
Chicago Bridge & Iron Company N.V. CBI, with an Earnings ESP of +0.87% and a Zacks Rank #3
Thor Industries Inc. THO, with an Earnings ESP of +1.38% and a Zacks Rank #1
Gibraltar Industries, Inc. ROCK with an Earnings ESP of +27.27% and a Zacks Rank #1
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