Trader Talk

Lennar builds houses—and hopes—with a big quarter

Pisani's market open: Lennar's profit beat
Pisani's market open: Lennar's profit beat

Will Lennar finally turn around the negative sentiment dogging the home building sector?

The company reported a strong beat 78 cents per share on Wednesday, well above consensus of 67 cents per share. Orders were up 23 percent year over year, also above expectations. Average sales price, at $330,000, was up 14 percent from a year ago.

A 23 percent jump in orders? That is huge. The last two builders to report—Toll Brothers and Hovnanian—both put up 6 percent year over year declines.

New homes for sale by Lennar home builders.
Getty Images

Why the difference? Lennar in particular opened a lot of new communities, particularly in Texas, which is probably the strongest housing market in the U.S. right now. Sales have been decent, so orders are up.

More importantly, Lennar's big numbers may help reverse some of the negative sentiment that has built up in the home builder space. It started in July, when D.R. Horton, the nation's largest builder, said they would be open to much higher level of incentives to drive sales. Horton dropped more than 10 percent that day, and all the home builders dropped, since that action puts pressure on margins.

The big story is that Lennar was able to get this big order increase without increasing incentives. The company's big numbers will help the bull argument. Home builders in general are fairly heavily shorted, so trading should be above average.


1) Federal Express also reported a strong beat on top and bottom line. More importantly, they January 5, 2015, by an average of 4.9 percent for domestic, express, ground and freight services. They backed full year guidance (this was the first quarter of the fiscal year), which was an historic high!

2) Two days ahead of the breathlessly awaited initial public offering (IPO) by Alibaba, Civitas Solutions, which provides home- and community-based healthcare services, priced 11.7 million shares at $17, well below the $20 to $23 range.

As for Alibaba, opinions are all over the place about how high it will price, and who will actually get a slice. IPO Boutique cited "strong sources" indicating that the top 50 institutional accounts could get upwards of 80 percent of the offering. That would leave a lot of leftover demand for retail investors and smaller institutions.

3) Boeing's win (along with Elon Musk's SpaceX) of a NASA for its next passenger aircraft is exciting for Boeing and for the manned space station. The CST-100 will transport up to 7 passengers, with the first manned flight scheduled for 2017.

Not only is it a significant advance over the old space shuttle, it will dramatically reduce U.S. reliance on the Russians for transportation to and from the space station.

Unfortunately, the $4.2 billion contract only amounts to about 5 percent of Boeing's estimated $89 billion in revenues that it will likely collect in 2014. Boeing is still reliant on Commercial Airplane sales for over 60 percent of those revenues. Military aircrafts are roughly 18 percent of sales, but those sales are expected to decline this year.

--By CNBC's Bob Pisani