Earnings From Lennar Keys Stability For The Housing Market

Apr. 03, 2018 11:38 AM ETLEN, DHI, KBH, TOL1 Comment

3.68K Followers

Summary

Homebuilders DR Horton, KB Home, Lennar and Toll Brothers are in bear market territory, suggesting that the housing market is not vibrant.
The housing market has been struggling as home prices have risen and as new and existing home sales have stalled.
Lennar reports quarterly results pre-market Wednesday after setting its 2018 low on Monday, below its 200-day simple moving average.

In mid-March I focused on homebuilder confidence and single-family housing starts. Today my focus is on home prices, existing and new home sales and earnings from Lennar, a benchmark homebuilder stock.

On March 21 the National Association of Realtors reported that existing home sales came in at 5.54 million units in February, stuck around the 5.5 million thresholds. Back in 2005, existing home dales peaked at 7.26 million units.

On March 23 the Census Bureau reported that New Home Sales declined 0.6% in February to 618,000 less than 50% of the July 2005 peak as shown in this chart.

On March 27 we learned that the January Core Logic S&P

Case-Shiller 20-City Home Price rose by 6.4% year over year in January. Since the end of 2012 home prices are up by an inflation-adjusted annual rate of 4.7%, well above the rate of inflation.

The 20-City Composite fell by 35.1% from its July 2006 high to its March 2012 low. Since then it’s up 53% and just 0.7% from the old high. In my opinion the house price bubble has reinflated.

Lennar (LEN)

Lennar reports quarterly earnings before the opening bell on Wednesday, April 4. The stock has a reasonable P/E ratio of 17.23 and analysts expect the homebuilder to earn between 82 and 85 cents a share. Most say that Lennar is seeing strong demand for homes in a favorable job market in a strong market. The data I have shown does not support a vibrant earnings report. A more realistic assessment is that homebuilders are under margin pressures given shortages of labor, the rising cost of lumber and difficulty in finding suitable land.

Lennar closed Monday at $56.83 down 10.1% year to date and in bear market territory 21.1% below its Jan. 18 high of $72.07. The stock is back below its July 2005 high of $67.68. Lennar traded to its 2018 low of $55.87 on Monday staying above my second quarter value level of $55.77.

The Daily Chart For Lennar

Courtesy of MetaStock Xenith

Lennar has been above a ‘golden cross’ since March 1, 2017 when the stock closed at $49.16. A ‘golden cross’ occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead.

Weakness held the 200-day simple moving average on Sept. 25 when the average was $49.16. These trades tracked the stock to my annual risky level of $70.88 (the upper horizontal line) which was exceeded at the Jan. 18 all-time high of $72.07, providing an opportunity to reduce holdings.

The stock has been below its 50-day simple moving average since Jan. 31 and the 200-day simple moving average of $57.12 was violated to the downside on Monday, but weakness held above my quarterly value level of $55.77, the lowest horizontal line on the chart.

The Weekly Chart For Lennar

Courtesy of MetaStock Xenith

Lennar has a negative but oversold weekly chart with the stock below its five-week modified moving average of $59.24, and above its 200-week simple moving average of $47.99, considered the “reversion to the mean” last tested during the week of Jan. 6, 2017 when the average was $42.42. The 12x3x3 weekly slow stochastic reading is projected to decline to 18.29 this week down from 21.16 on March 29 falling below the oversold threshold of 20.00.

Trading Strategy: Buy weakness to my quarterly value level of $55.77. I show weekly and semiannual pivots of $57.98 and $60.09, respectively. Reduce holdings on strength to my monthly risky level of $60.09.

This article was written by

Richard Suttmeier

3.68K Followers

I am the Founder & CEO at Global Market Consultants, Ltd. I consider myself as a Financial Engineer with an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. In 1972 I began my career in the financial services industry trading U.S. Treasury securities in the primary dealer community. I became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gave me the insights to be an expert on monetary policy, which I feature in my newsletters, and market commentary. I formed Global Market Consultants Ltd at the end of 1988 and expanded on my analysis to include proprietary analytics. While operating Global Market Consultants I was the U.S. Treasury Strategist at Smith Barney 1991 through 1995, was Chief Financial Strategist at William R. Hough in St. Petersburg, Florida 1997 through 1999, and was Chief Market Strategist at Joseph Stevens 1999 into 2008. I began covering U.S. equities in 1997 and began to use ValuEngine as my stock screening tool in 2002 before joining them as Chief Market Strategist between September 2008 and November 2014. I was the Chief Market Strategist at Niagara International Capital Limited between December 2009 and December 2014. In 2005 through 2007 I wrote columns on RealMoney.com and authored TheStreet.com Technology Report. My unique coverage called for the housing bubble to pop in 2005 and for regional banks to collapse in 2006 and early-2007. This is when my proprietary analytics became known as value levels at which to buy on weakness and risky levels at which to sell on strength. I became an Expert Contributor for TheStreet.com in April 2012 and currently write one or two stories a day covering subjects such as: The housing market, community and regional banks, momentum stocks, earnings profiles both before companies report quarterly results and provide scorecards after reporting results. Many of my stories we include moving averages, momentum readings, analysts’ earnings estimates, and value levels and risky levels. Over the years I made frequent appearances on financial TV beginning in 1993 on CNBC covering the U.S. Treasury auctions and as a substitute for John Murphy on his segment called ‘Tech Talk’. I also occasionally appeared on CNN and Bloomberg. On almost every holiday I appeared for an hour covering stocks on a call-in / email-the-expert ‘Talking Stocks’ show on CNNfn. In 2002 I had my own show on Yahoo Finance TV called, ‘Traders’ Club with Richard Suttmeier’. When Fox Business began in late-2007 I was a frequent guest on ‘Money for Breakfast’. I also made appearances on Reuters TV, Yahoo Finance Breakout and BNN in Toronto. In recent years I shifted my focus to making presentations to various investor groups such as: MBA students at the University of Florida and South Florida, The American Association of Individual Investors, Wells Fargo Advisors, The Executive Form at the National Arts Club in NYC, Investors Roundtable of Wilmington NC, The Market Technicians Association, The Information Management Network when they cover Florida Banks in Ft Lauderdale, and the University of Tampa Investment Club. I was president of the Society for the Investigation of Recurring Events in NYC from 2000 into 2009. My background began on Long Island, New York. I graduated from Bay Shore High School in 1962, and was a member of the Honor Society, Golf Team, Math Team and Band. I graduated from Georgia Tech in Atlanta with a Bachelor of Industrial Engineering Degree in 1966, and was a member of Chi Phi Fraternity, the freshmen Golf Team, and was the captain of the Bowling team. I won the South East Regional Bowling Tournament in 1964 and won the National Intercollegiate Bowling Championship in the Doubles Event that same year. I graduated from Brooklyn Poly in 1970 with a Master of Science in Operations Research, Systems Analysis. My first job out of Georgia Tech was with Grumman Aerospace on Long Island 1966 through 1970 with project assignments on the Lunar Module and F-14 Tomcat Fighter Jet contract proposal. I was with Bank of New York in 1971, as the Senior Systems Analyst for computer applications for the Bank’s International Division. When I shifted my to Wall Street In 1972 I became a U.S. Government securities trader at Briggs Schaedle, a primary dealer where my father was Vice Chairman and my brother was Sales Manager. In 1977 I joined Loab Rhodes as a U.S. Treasury trader. Then my career advanced as noted above. I have been married to Linda since June 1969 and we are the parents of Stephen and Jason Suttmeier. Stephen has been married to Jennifer since 2004 and we have a granddaughter Emily and a grandson Robert. We have been living in Land O’ Lakes, Florida with Jason and his partner James since June 2009.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Summary

Lennar (LEN)

The Daily Chart For Lennar

The Weekly Chart For Lennar

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