Tags: US | Homebuilders | Analyst | Note

Analyst: New Home Orders Set to Rise at Lennar, KB

Tuesday, 22 Jun 2010 03:27 PM

Solid operating margins should help homebuilder Lennar Corp. turn a slight profit during the March-May quarter, while high costs will keep rival KB Home in the red in the same period, a JMP Securities analyst said Tuesday.

Miami-based Lennar and Los Angeles-based KB Home each report fiscal second-quarter results later this week.

Analyst James Wilson said each builder should post higher new home orders despite a likely dip in demand in May following the expiration of homebuyer tax credits.

The National Association of Realtors said Tuesday that sales of previously occupied homes dipped in May by 2.2 percent from the previous month to a seasonally adjusted annual rate of 5.66 million. And nearly a third of sales in May were from foreclosures or other distressed properties. That means home prices could soon be heading down after stabilizing over the past year.

But Wilson sees Lennar eking out a small quarterly profit on the strength of some of the highest operating margins in the sector. He also expects Lennar will brush off the loss of the tax credit incentive and turn in strong summer sales and a profitable 2010.

Wilson's outlook for KB is not quite as bullish. He said the builder's relatively high selling, general and administrative expenses will prevent it from turning a profit for the quarter.

Regardless, the analyst anticipates KB is poised to grab significant market share in its core California and Southwest markets as home prices continue to stabilize.

Share prices for Lennar and KB Home have dropped over the past few weeks along with those of other homebuilders on worries over the expiration of the homebuyer tax credits, weak job growth and other potential headwinds to the housing recovery.

But Wilson believes the stocks are trading at a discount.

He rates KB and Lennar as "Market Outperform" with a price target of $20 for each stock.

Shares in KB slipped 18 cents to $11.90 in afternoon trading, while Lennar shares fell 35 cents to $14.22.

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Solid operating margins should help homebuilder Lennar Corp. turn a slight profit during the March-May quarter, while high costs will keep rival KB Home in the red in the same period, a JMP Securities analyst said Tuesday.Miami-based Lennar and Los Angeles-based KB Home...
US,Homebuilders,Analyst,Note
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2010-27-22
Tuesday, 22 Jun 2010 03:27 PM
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