On Friday, Evercore ISI adjusted its outlook for Lennar Corporation (NYSE: NYSE:LEN), increasing the price target to $238 from $224, while maintaining an Outperform rating on the stock. The home construction company reported its first-quarter 2024 earnings with an adjusted diluted earnings per share (EPS) of $2.58.
This figure surpassed both Evercore ISI's estimate of $2.22 and the Street consensus of $2.21. The reported earnings excluded a $5.1 million mark-to-market loss from investments, which had a minimal negative impact on EPS.
Lennar's financial performance in the first quarter was robust, with the company exceeding expectations in several areas. Gross margins reached 21.8%, compared to the estimated 21.3%. Financial services income was reported at $131 million, significantly higher than the $87 million forecast.
Additionally, other income stood at $70 million, far outpacing the $20 million estimate. However, the company's closings and orders were slightly below expectations, with 16.7k closings against the anticipated 17.0k, and year-over-year orders growth matching the predicted 30%.
The company's average selling price (ASP) for closings was marginally lower at $413,000 compared to the estimated $421,000. Lennar also demonstrated a strong financial position by retiring $488 million in debt during the last quarter and maintaining a net debt-to-capital ratio of -15%. Although the company repurchased approximately $500 million of stock, which was below the $800 million Evercore ISI had forecasted, it aligned with Lennar's full-year guidance of $2 billion.
Despite market concerns regarding Lennar's second-quarter gross margin (GM) guidance and share repurchase activity, Evercore ISI remains optimistic. The second-quarter GM guidance of 22.5% was approximately 100 basis points lower than expected, but the first-quarter results were 50 basis points ahead of forecasts.
The company's projected gross margin for the second half of 2024 is an encouraging 24%, supported by expected lower incentive levels and normal seasonal fixed cost leverage. Evercore ISI also anticipates that Lennar will increase its share repurchases above the current guidance, leveraging its excess cash throughout the year.
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