Lennar Corporation (LEN), PulteGroup, Inc. (PHM), D.R. Horton, Inc. (DHI): Should You Buy Homebuilders?

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Lennar Corporation (NYSE:LEN) released second-quarter financial results this week. The results easily beat estimates once again highlighting the ongoing recovery in the housing market, which has benefited homebuilders like Lennar, PulteGroup, Inc. (NYSE:PHM), and D.R. Horton, Inc. (NYSE:DHI) since last year. However, in recent weeks, rising mortgage rates have raised concerns that the recovery in the housing market could be shortlived.

Lennar Corporation (NYSE:LEN)

Solid results and outlook highlight housing market recovery

Lennar Corporation (NYSE:LEN) reported earnings of $137.4 million, or $0.61 per share. Last year, the company booked $452.7 million, or $2.06 per share, for the same period. This huge difference is mainly due to a much larger tax gain last year. Excluding the tax gain, Lennar Corporation (NYSE:LEN)’s earnings for the quarter were $0.43 per share, compared to $0.21 per share reported in the year ago period. The company’s adjusted earnings were well above the consensus forecast of $0.33 per share.

Lennar’s revenue for the quarter jumped 53% to $1.43 billion, again beating Street estimates of $1.33 billion. Gross margin also improved significantly.

The homebuilder reported a 39% increase in deliveries to 4,464 homes. Orders rose 27% to 5,705 homes. Backlog at the end of the quarter stood at 6,163 homes, up 55%.

These results certainly highlight the ongoing housing market recovery and are in line with those of other homebuilders. In its most recently reported quarterly results, PulteGroup, Inc. (NYSE:PHM) reported net income of $82 million, or $0.21 per share, compared to a net loss of $12 million, or $0.03 per share, in the same quarter last year. The company’s backlog value increased 52%, while its unit backlog rose 35%. D.R. Horton, Inc. (NYSE:DHI) also posted a 173% increase in net income. Quarterly net sales orders rose 34%, while its sales order backlog rose 54% in unit terms and 76% in dollar terms.

Housing market data further confirms recovery

Apart from these impressive results, data from the housing market released earlier this week also confirms the recovery in the housing market. According to a report released by the Commerce Department, new home sales rose 2.1% in May to a seasonally adjusted annual rate of 476,000. The data beat consensus forecasts of a 468,000 annual rate. Meanwhile, a separate report showed that home prices in the U.S. posted their biggest year-over-year gain since March 2006 in April. The S&P/Case-Shiller index of home prices in 20 U.S. cities rose 12.1% in April. The gain was well above the consensus forecast of 10.6%.

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