Many investors are looking at home builders such as the Lennar Corporation (NYSE: LEN) because of America’s housing shortage.
Notably, Lennar’s share price grew from $68.85 on 20 July 2020 to $100.11 on 22 July 2021. I think news stories about the housing shortage drive Lennar’s growth.
For example, housing technology company Veev estimates the USA has a seven million home “housing deficit.” A Veev press claims California alone has a three million home housing deficit.
Conversely, Freddie Mac estimates the US housing deficit at 3.8 million homes. However, Freddie claims the housing stock deficit grew by 52% between 2018 and 2020, rising from 2.5 million in 2018 to 3.8 million in 2020.
The Housing Deficit
Meanwhile, the National Association of Realtors estimates the housing deficit at 6.8 million units. The Association blames shortages of construction workers and a failure to build affordable housing for the deficit.*
The level of housing construction is falling. Between 1968 and 2000, US housing stock grew by 1.7% a year. However, US housing stock grew by just 0.7% between 2010 and 2020, the National Association of Realtors estimates.*
Therefore, the loss of housing units to abandonment, demolition, and decay could exceed the rate of construction. In other words, Americans abandon or demolish more homes than they build. Hence the housing deficit.
The deficit could get worse because the Association estimates the nation’s housing inventory plunged to its lowest level since tracking began in 2021. However, tracking only began in 1999.*
Can Lennar Cash in on the Housing Deficit?
Investors bet that Lennar (LEN) which builds homes in 59 real estate markets in 22 states can cash in on the housing deficit.
Lennar profits from housing by engaging in both homebuilding and mortgages. To that end, it operates Lennar Mortgage. Lennar invests in next generation housing technology companies such as Veev through its subsidiary Lenx.
Veev simplifies home construction by utilizing innovative materials such as steel and high performance surfaces in modular prefabrication. Veev claims it can build homes four times faster than normal builders and at lower cost.
For instance, Veev claims to have completed 78-unit housing project in San Jose, California, in under 90 days.
Companies, Lenx has invested in include Hippo, Opendoor, Modsy and Title. All of those companies aim to speed up the home buying process by digitizing transactions. Hippo, for example, offers housing insurance quotes, Opendoor sells existing homes, Modsy designs homes in 3D and Title handles transactions.
Is Lennar making money?
The Lennar Corporation (LEN) is making money from housing. For example, Lennar’s quarterly gross profit grew from $1.146 billion on 31 May 2020 to $1.718 billion on 31 May 2021.
Similarly, quarterly revenues grew from $5.26 billion on 31 May 2020 to $6.444 billion on 31 May 2021. Additionally, Lennar’s quarterly operating income grew from $663.10 million on 31 May 2020 to $1.58 billion on 31 May 2021.
Conversely, Lennar’s quarterly operating cash flow fell from $957 million on 31 May 2020 to $481 on 31 May 2021. In addition, the quarterly ending cash flow fell from $581.84 million on 31 May 2020 to $187.75 million on 31 May 2021.
How Much Cash and Debt does Lennar have?
Hence Lennar is making more money but generating less cash. I suspect these numbers show that Lennar is spending more money.
In contrast, Lennar’s cash and short-term investments grew from $1.647 billion on 31 May 2020 to $2.747 billion on 31 May 2021. Impressively, Lennar is paying off debts. Lennar’s Total Debt fell from $9.075 billion on 31 March 2020 to $6.06 billion on 31 May 2021.
I consider Lennar a healthy company because it paid off debts during a pandemic. Notably, Lennar reported five straight quarters of negative financing cash flow between 31 January 2020 and 31 May 2021. Impressively, Lennar survived the pandemic without borrowing money.
What Value Does Lennar have?
Lennar’s value is growing. Its total assets grew from $29.309 billion on 31 May 2020 to $31.233 billion on 31 May 2021.
Moreover, Stockrow estimates that Lennar’s revenues grew by 22.51% in the quarter ending on 31 May 2021. The revenue growth rose from 18.33% in the quarter ending on 28 February 2021 and -2.12% in the quarter ending on 30 November 2020.
Hence, Lennar (LEN) is a growing company that makes money. Moreover, Lennar is in an industry that could experience enormous growth if the government encourages housing construction. However, high interest rates or an economic collapse could throttle housing growth.
Additionally, Lennar offers an impressive dividend. It paid a 25¢ quarterly dividend on 19 July 2021. Moreover, that dividend grew from 12.5¢ paid on 9 July 2020. Thus, Lennar’s dividend doubled in the last year.
Overall, Lennar offered a last twelve months (LTM) dividend of $1.13 and a 1.17% dividend yield on 20 July 2021. Thus, I consider Lennar a wonderful stock with great growth potential. If you want a dividend that could grow, the Lennar Corporation (NYSE: LEN) is worth investigation.
*https://cdn.nar.realtor/sites/default/files/documents/Housing-is-Critical-Infrastructure-Social-and-Economic-Benefits-of-Building-More-Housing-6-15-2021.pdf
Originally published at https://marketmadhouse.com on July 22, 2021.
