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MarketScreener Homepage  >  Equities  >  Nyse  >  D.R. Horton    DHI

D.R. HORTON

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Trade war hurts Lennar as wealthy Chinese home buyers remain cautious

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06/25/2019 | 02:16pm EDT
FILE PHOTO: Newly constructed houses built by Lennar Corp are pictured in Leucadia, California

(Reuters) - Lennar Corp forecast current-quarter earnings below Wall Street estimates on Tuesday, as wealthy Chinese buyers shun buying homes in the United States due to uncertainty triggered by an escalating trade row between the countries.

Shares of the No.2 U.S. homebuilder reversed course to drop as much as 6.4% in afternoon trade after the company warned that more tariffs on Chinese imports could increase raw material costs and dent margins.

"The high-end coastal markets (in California)...with $1 million plus homes are heavily influenced by what's being impacted with the Chinese buyer," President Jonathan Jaffe told analysts on a post-earnings conference call.

Order value in Lennar's west region, which includes Arizona, California, Colorado, Nevada, Oregon and Washington, fell 7.8% and was the weakest among its five geographical divisions for the quarter ended May.

The region accounted for about 42% of Lennar's homebuilding revenue last year.

Lennar said its costs rose by $500 per home on average in the latest quarter after President Donald Trump imposed additional tariffs of up to 25% on $200 billion of Chinese goods in early May.

The company forecast third-quarter earnings per share to be in the range of $1.25 and $1.35, below the average analyst estimate of $1.52, according to IBES data from Refinitiv.

Lennar's disappointing commentary coincided with dismal data from the Commerce Department on Tuesday that showed U.S. new home sales dropped 7.8% to a seasonally adjusted annual rate of 626,000 units last month, the lowest level since December, dragging on the entire housing sector.

Shares of other homebuilders, including D.R. Horton Inc, PulteGroup Inc and Toll Brothers Inc, fell 2% to 5%, while the S&P Composite 1500 Homebuilding Index declined 3.9%.

The effects of the trade war were offset by gains from near two-year low mortgage rates that have encouraged customers, especially first-time home buyers, to make purchases.

Lennar said home sales increased 5% to 12,729 units in the three months ended May 31, beating the company's prior forecast of between 11,700 and 12,000 deliveries.

However, analysts are less optimistic about sales for the remainder of the year, pointing to tapering gains from the Trump administration's tax cuts.

"Quick drops in mortgage rates often have an effect of pulling forward contracts from home buyers, which can leave an air-pocket of demand in subsequent months," Raymond James analyst Buck Horne wrote in a note last week.

Lennar reaffirmed its full-year home sales target of over 50,000 homes, while second-quarter orders edged up 0.5% to 14,518 units, ahead of the 14,300 units estimated by the company.

Gross margins in the second quarter fell to 20.1% from 21.6%, due to a "greater-than-expected" rise in incentives offered, the company said.

Lennar earned $1.30 per share in the quarter, beating estimate of $1.14.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Anil D'Silva and Sriraj Kalluvila)

By Ankit Ajmera

Stocks mentioned in the article
ChangeLast1st jan.
D.R. HORTON -2.57% 43.61 Delayed Quote.25.82%
KB HOME -3.04% 25.53 Delayed Quote.33.66%
LENNAR CORPORATION -0.30% 45.86 Delayed Quote.17.50%
PULTEGROUP -8.33% 30.69 Delayed Quote.28.82%
TOLL BROTHERS INC -1.35% 34.98 Delayed Quote.6.23%
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Financials (USD)
Sales 2019 16 967 M
EBIT 2019 1 791 M
Net income 2019 1 468 M
Debt 2019 1 390 M
Yield 2019 1,37%
P/E ratio 2019 11,2x
P/E ratio 2020 10,1x
EV / Sales2019 1,04x
EV / Sales2020 0,94x
Capitalization 16 274 M
Chart D.R. HORTON
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Technical analysis trends D.R. HORTON
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 47,82  $
Last Close Price 43,61  $
Spread / Highest target 21,5%
Spread / Average Target 9,66%
Spread / Lowest Target -5,98%
EPS Revisions
Managers
NameTitle
David V. Auld President & Chief Executive Officer
Donald Ray Horton Chairman
Michael J. Murray Chief Operating Officer & Executive Vice President
Bill W. Wheat CFO, Principal Accounting Officer & Executive VP
Michael R. Buchanan Independent Outside Director
Sector and Competitors
1st jan.Capitalization (M$)
D.R. HORTON25.82%16 274
DAIWA HOUSE INDUSTRY CO LTD-7.73%19 427
SEKISUI HOUSE LTD19.89%12 091
PULTEGROUP28.82%8 416
BARRATT DEVELOPMENTS39.50%8 164
PERSIMMON4.97%7 977