Lennar to Open Sterling Heights in San Diego, Boost Revenues

Lennar Corporation LEN announced the opening of Sterling Heights at The Lakes above Rancho Santa Fe in San Diego.

Sterling Heights will be the first-ever opportunity for the homebuyers of San Diego to experience Lennar Next Gen Home design. Lennar's The Lakes master-planned community is part of the Poway School District and is close to the Design 39 charter school.

Its Next Gen homes offer a main home plus an attached suite in both single story and double-story home designs. Sterling Heights is built specifically for the increasing number of homebuyers who are looking for a comfortable, welcoming and well-appointed multigenerational housing option.

Lennar, a leading homebuilder in the United States, offers a diversified line of homes for first-time, move-up and active adult homebuyers. The company’s ‘Everything's Included’ marketing program focuses on improving the value of homes through standard upgrades and competitive pricing. The company is highly customer centric and regularly upgrades its homes to cater to changing consumer requirements. Its Next Gen homes are one of the instances of such initiatives.

Notably, the company’s total revenues in the first nine months of 2018 increased 59.3% year over year, owing to Homebuilding and Financial Services’ impressive performance. Particularly in the Homebuilding segment, revenues grew 67% to $12.9 billion, driven by higher number of homes delivered and greater average selling prices. Also, new home orders rose 53.2%, with potential value of net orders surging 65.8% year over year to $14.5 billion.

Backlog grew 88% to 19,220 homes from the year-ago quarter as of Aug 31, 2018. Potential housing revenues from backlog increased 105% year over year to $8.4 billion.

However, shares of Lennar have lost 25.6%, underperforming its industry’s fall of 20.2% in the past six months due to ongoing headwinds in the construction sector. Rising land and labor costs are threatening margins as they limit homebuilders’ pricing power. Consequently, the company has given weak 2019 guidance for gross margin and expects deceleration in its growth (in mid-single digits) in 2020. The recent move of the U.S. Government’s tariff imposition on imported steel and aluminum has added to the woes.

Zacks Rank & Stocks to Consider

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector are Masco Corporation MAS, Lennox International, Inc. LII and Owens Corning Inc OC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Masco’s earnings are expected to grow 24.2% and 12.8% in 2018 and 2019, respectively.

Lennox’s 2018 and 2019 earnings are expected to grow 18.9% and 31.3%, respectively.

Owens Corning’s earnings for 2018 and 2019 are expected to increase 7.7% and 16.6%, respectively.

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