Lennar Records Strongest First-Quarter Homebuilding Operating Margin In 6 Years

| About: Lennar Corporation (LEN)
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The nation's third-largest homebuilder Lennar (NYSE:LEN) reported strong first-quarter results Tuesday that revealed strong order growth, which largely eased concerns brought about by KB Home's (NYSE:KBH) recent disappointing order performance. Though we think the housing market will show continued stabilization and improvement during 2012, we're not enthused by any of the valuations presented by homebuilding stocks at this time. We remain on the sidelines with respect to Lennar and its peers as it relates to any long or synthetic short (put) positions in our newsletters.

Lennar's revenue increased 30% in the quarter, as deliveries expanded at a similar pace (29%) and the firm experienced positive pricing. New orders advanced 33%, to 3,022 homes, while the firm's backlog increased to 2,711, up 39%. The firm's cancellation rate came in at 18% during the period. The homebuilder's gross margin improved 90 basis points, to 10.9%, while SG&A fell 150 basis points as a percentage of sales, to 14.9%. Lennar's operating margin on home sales was 6% during the period, up 240 basis points. Net earnings per share during the quarter were $0.08 compared to an adjusted net loss in the prior-year quarter and coming in $0.03 ahead of consensus expectations.

All things considered, we think the report from Lennar suggests the housing market has found solid footing during the first few months of 2012. Though monthly economic news regarding the housing market will continue to be volatile, low home prices coupled with low interest rates are making the decision to purchase a new home more attractive than renting, the latter becoming increasingly more expensive.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.