Despite dismal economic reports and tight lending standards, the home builders have greatly outperformed the broad market this year. On Monday, Lennar (NYSE:LEN), the third largest U.S. home builder by revenue, kept the optimism in the industry after reporting third quarter results. However, investors took the opportunity to book profits.
Before the opening bell, Lennar announced that net income for the quarter ended August 31 increased to $87.1 million (40 cents per share), compared to $20.7 million (11 cents per share) in the same quarter a year earlier. Revenue also surged 34.1 percent to $1.1 billion. The results easily beat the mean analyst earnings estimate of 28 cents per share, and the average revenue estimate of $885.7 million. The company has now topped analyst estimates for three consecutive quarters. It beat the mark by 5 cents in the second quarter and by 3 cents in the first quarter. Revenue has gained for the past four quarters.
Although the results came in strong, Stuart A. Miller, chief executive officer, noted on the conference call that the housing recovery is very local. He explains, “While I’m increasingly enthusiastic about the housing recovery, I don’t want to overstate the case. While the trend is decidedly positive, stabilization and recovery are still uneven across the country and even with end markets. As I’ve said before, the housing depression was a national phenomenon while the recovery is very local. We’re continuing to see pockets of activity develop across the country that are recovering and these pockets are growing, while still the broader market outside of these pockets often remains weak.”
Don’t Miss: Will it Soon Rain Dividends on Shareholders?
Last week, the National Association of Home Builders reported that its survey of builder confidence in the market for newly built, single-family homes increased for a fifth consecutive month in September. The index rose three points and now stands at 40, which is the highest level it has reached since June 2006. The index is still below 50, the cut off line between positive and negative, but it is an improvement from last year’s reading of only 14. Considering the three-month average, the Midwest and West region registered the biggest gains.
On Monday, investors took the good news as a chance to book profits in what has been an outstanding year for home builder stocks. Shares of Lennar closed nearly 1.5 percent lower, but are still up 88 percent year-to-date. Other home builder names such as Toll Brothers (NYSE:TOL) and DR Horton (NYSE:DHI) also closed lower.
Home builder stocks have been some of the best performers in the third quarter so far. For the past three months, PulteGroup (NYSE:PHM) shares are among the best five gainers in the entire S&P 500, surging 57 percent. Meanwhile, shares of KB Home (NYSE:KBH) are the second best performer in the S&P 400, jumping 51 percent.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.