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We’ve been all over housing stats in recent months, especially since the beginning of the year.On the one hand, we’ve discussed Jamie Dimon’s bullishness on household formation, happy homebuilder sentiment, plunging apartment vacancies and the Fed potentially springing into action.
So tomorrow’s earnings release by Lennar, one of the biggest homebuilders in the U.S., should prove a bellweather on the true state of the housing market.
Not surprisingly, analyst estimates for LEN vary widely, with a low EPS of $0.03 and a high of $0.33.
Macro housing trends will dominate Lennar’s financial performance. But results will be further complicated by a lost of company-specific issues. Deutsche Bank’s Q3 research note captures the uncertainty pretty well:
Much of Lennar’s income stream remains difficult to analyse; elevates risk
Until the housing market begins a more consistent recovery path, Lennar’s profit profile is likely to continue to be dominated by sources of income like Rialto and other JVs that are difficult to analyse. Income streams from these sources are generally based on the performance and harvesting of illiquid assets, making any quarter’s income stream an unreliable indicator of future performance. We think management’s extensive historical experience with alternative investment strategies increases their likelihood for success; however, ultimately the profitability of these alternative strategies will hinge upon a stronger recovery in housing and the economy. Thus, at a time when uncertainty about the economy is high, these alternative investments not only remain difficult to analyse, but would also appear to elevate risk for Lennar relative to peers.
Even if Lennar disappoints, the bottom can’t be too far off. But we’ll know for sure tomorrow whether we’re talking about weeks or months.