Homebuilder stocks rally after Lennar results top estimates

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Stock prices rose for publicly-traded homebuilders after Lennar Corp.'s fourth-quarter orders and revenue beat estimates, even as home prices fell in the quarter.

Lennar shares jumped as much as 5.4% in early trading on Jan. 8, the most since March 27. The S&P Supercomposite Homebuilding Index rose as much as 2.9% to the highest since Dec. 12, with top gainers including M/I Homes (which got an upgrade earlier), William Lyon Homes, Century Communities and Toll Brothers.

Lennar likely "cleared the bar" of investor expectations, while its forecast for year-ahead closings topped JPMorgan's estimate, analyst Michael Rehaut wrote in a note.

KB Home, which climbed as much as 3%, is due to report its results on Jan. 9 after market close. Investors will watch KB Home along with Lennar for first walk-throughs on builder earnings.

Lennar shares have outperformed so far this year, rallying 7.6% versus a 4.5% gain for the homebuilders index and an increase of just 0.5% for the S&P 500.

Earlier, Lennar reported fourth-quarter net new orders of 13,089; that compared with a Bloomberg MODL estimate of 12,320. Revenue in the quarter of $6.97 billion beat analysts’ estimates of $6.61 billion.

Revenue rose compared with the prior year primarily due to a 16% increase in home deliveries, but was partially offset by 7% decrease in the average sales price of homes delivered, the company said in a statement. The average sales price of homes delivered fell to $393,000 from $421,000 a year earlier, reflecting Lennar’s “continued focus on the entry-level market and, in general, moving down the price curve,” according to the statement.

Gross margins on home sales rose to 21.5% from 21.4%, as the quarter last year included 70 basis points of "backlog/construction in progress write-up" related to purchase accounting adjustments on CalAtlantic homes.

Bloomberg News