Lennar Takes One-Time Litigation Charge, Lowers Q1 Earnings

Lennar Corp. (NYSE:LEN) , one of the country's largest homebuilders, said on Monday that it recorded a one-time litigation charge of $140 million, relating to a property case that dates back to 2008.

This will probably compel the company to restate its first-quarter earnings. Since its first-quarter earnings release, the company had a hearing in the court of appeals for a case dating back to 2008. The case is regarding the company’s requirement in purchasing a property in Maryland. This charge includes the company's estimate of fair value for the property.

Lennar earlier stated first-quarter earnings of $130.8 million or 56 cents per share on Mar 21. However, the company has now reported net income of $38.1 million or 16 cents per share for the same period.

Meanwhile, the megadeveloper spin-off of Lennar Corp., Five Point Holdings LLC, has filed to go public. Back in 2009, Lennar formed Five Point in order to manage its California master-plan developments and remains a major stakeholder in the company. As per the latest quarterly filing, Lennar owned approximately 45% of Five Point’s shares as of Dec 31, 2016.

Five Point is currently involved in building the second phase of the San Francisco Shipyard and Candlestick Point, totaling 12,000 homes, as well as the 21,500-home Newhall Ranch project and 9,500-home Great Park Neighborhood in Southern California. Going public will provide the developer a new funding mechanism for its future projects.

Lennar has agreed to buy $100 million worth shares in Five Point. Additionally, two investment firms, namely Third Avenue Management LLC and Castlelake LP, are also interested in purchasing $25 million in stock.

After the outstanding fiscal 2015 results, Lennar posted strong numbers in 2016 as well. The company is one of the best-positioned homebuilders to capitalize on the housing recovery, driven by diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage. Moreover, its ancillary platforms - Rialto, Multi-Family, FivePoint and Financial Services - are evolving and should improve further.

Stock Performance

Lennar’s shares have gained 19.9% year to date, compared with the 18% growth for the Zacks categorized Building-Residential/Commercial industry. Diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage should drive the stock’s performance in the upcoming quarters as well.



Zacks Rank & Other Key Picks

Lennar holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other stocks in the same space include KB Home (NYSE:KBH) , Persimmon (LON:PSN) plc (OTC:PSMMY) and M.D.C. Holdings, Inc. (NYSE:MDC) .

KB Home and Persimmon is likely to register 42.4% and 1.3% EPS growth this year, respectively. Both the stocks sport a Zacks Rank #1.

M.D.C. is expected to grow 26.8% in EPS this year.

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Lennar Corporation (LEN): Free Stock Analysis Report

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