Earlier this week, Lennar (LEN) reported its biggest increase in new orders in the past three quarters, which not only bodes well for the company's investors but is also a positive sign for the overall housing market. New orders between December and February increased a sensational 33%, to 3,022 homes, and net income crushed analysts' expectations. Even though analysts were estimating EPS of $0.04/share, the company reported net earnings of $15 million, or $0.08/share (a 100% surprise).
Lennar appears to be bucking the trend of its competitors, most notably KB Home (KBH), as Lennar reported an increase not only in new homes but in the delivery of such homes, which was up 29% -- the best numbers shareholders have seen since 2008. KB Home, on the other hand, reported recent earnings that were beyond dismal. It posted EPS losses much greater than what analysts were calling for. The expectations were for a loss of $0.24/share, and KB Home reported a loss of $0.59/share. I would like to hope that this could be the bottom for the company; however, my instincts tell me to stay very far away.
As noted during Lennar's conference call, with regard to the changes in the current housing market, CEO Stuart Miller said, "We have been able to increase sales prices and have started to reduce sales incentives in some of our communities. We have also seen a noticeable improvement in our sales pace per community."
From an investing standpoint I'd play these stocks two different ways. Lennar has great long-term growth potential, and given the positive guidance by Miller it looks as if we could see the next two quarters demonstrate better results. KB Home, on the other hand, is one I'd stay pretty far away from as we may not have seen the company bottom out just yet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.