Lennar valuation near tangible book puts margins in spotlight

On Lennar’s second-quarter earnings call, Stuart Miller expressed cautious optimism about improving margins as part of his grounded, realistic assessment of market conditions. The optimism stemmed from a nascent recovery in gross margins, marked by a 120-basis-point sequential increase from the first quarter. However, with Lennar’s shares now trading at just 1.05x tangible book value (and 0.88x stated book value) after a 16% decline since the release of second-quarter results, market expectations for near-term margin improvement appear to have cooled. While financial markets can be more volatile and mercurial than the housing market, the cooling expectations are notable given that Lennar will host its third-quarter call this Thursday morning, when it will share its view of market conditions and likely update its outlook on the path of margins. The Lennar path foward These margin projections, along with Lennar’s operating decisions on its level of starts and incentives, which will affect margins, are tied to the broader issue of slowing production in an affordability-impacted market, as we discussed last week in “What D.R. Horton’s 2027 budget tells rivals about pricing.” The direct...