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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (39756)	6/18/2003 10:56:36 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71541

Investor's Business Daily Builder's Opportunism Hits Nail On The Head Wednesday June 18, 10:19 am ET By Marilyn Alva After being crushed by the tech wreck, the San Francisco housing market is starting to show signs of life. Lennar Corp., (NYSE:LEN - News) one of the largest builders in the country, is ready to take advantage. When the Bay area housing market tanked a couple of years ago, Lennar went in and bought property at a reduced price, figuring the market would come back eventually. One of its purchases was a former salami factory in the South Beach district, an up-and-coming neighborhood near PacBell Park. Lennar converted the plant into loft apartments and named it Brannan Square. The company boasts operations in 19 states - including Florida, California and Texas - but usually focuses on single-family homes in the suburbs. Still, Lennar's presence in a trendy district in San Francisco should come as no surprise, execs say. "We respond to opportunities," said Chief Executive Stuart Miller. "We recognize that market trends do change." San Francisco isn't the only urban locale where Lennar is turning up the volume. It also has high-rise condo developments underway in San Diego and Miami, where it's headquartered. Downtown Chicago might be next. Lennar's chameleon-like strategy helps it pump out sales and earnings growth even in soft housing markets, says analyst James Wilson of JMP Securities. "Lennar's broad swath across all the housing market opportunities gives them an ability to manage through all cycles," he said. "It makes them more predictable than some of the other builders that do just one thing." The company delivered 7,385 new homes during the fiscal second quarter ended May 31, up 25% from the prior year. Average sales prices gained 8% to $257,000, while revenue from home sales was up 36% to $1.9 billion. Homes in backlog gained 38% to a record 15,600 units during the quarter. New orders rose 22% to 9,798. It all added up to quarterly profit of $2.05 a share, a 50% increase from the prior year. According to a recent report from analyst Barbara Allen of Natexis Bleichroeder, Lennar's new-order growth in the last quarter was driven by the 21% expansion in the number of its selling communities. The company can thank acquisitions for helping it expand so rapidly. The way Miller describes Lennar's strategy, buyouts are part of the everyday routine. "We integrate so quickly that we consider everything internal," he said. The company purchased 11 builders over the last 18 months. Last year's takeover of two Chicago-area builders - Concord Homes and Summit Homes - put Lennar in the top rungs of the metro Chicago market. Lennar's integration of those buys was typical of its strategy. It put some money into operations, then cut costs by leveraging its nationwide network of suppliers and distributors. The company also added its own mortgage and insurance services and launched its dual marketing program, which lets buyers choose between custom or standard options packages. Like a lot of builders, Lennar has benefited from favorable market conditions over the past couple of years. Low-interest rates fueled activity, as did an influx of new customers into key Sun Belt markets. The nation's housing boom has shown no sign of letup. If the market does slow, however, companies with ready supplies of land should weather it in decent shape, notes analyst Stephen Kim of Citigroup Smith Barney, which has investment ties with Lennar. "Even if housing demand were to weaken, the supply constraints in the industry should make any resulting downturn far more modest than in previous cycles," Kim wrote in a report. In a tight supply environment, managing Lennar's land position is crucial, Miller says. "Historically, larger builders had acquired too much land," he said. Lennar has enough developable land sites to last about five years, he says. Two years' worth comes from land it owns outright. The rest is optioned, so it can walk away if the market changes. That's smart, Wilson says. "Why buy lots two or three years ahead of time and let them sit on your balance sheet and pay interest when you can option them?" Meanwhile, California's renewed housing strength has convinced Lennar to expand its holdings there. In addition to the Bay area, it's broadening its presence in the more rural Central Valley, which has lured residents looking to flee overcrowded cities. Analysts see continued good times ahead, at least for the near term. Those polled by First Call expect Lennar's full-year profit to climb 23% to $8.61 a share. Earnings growth should slow considerably next fiscal year, however, with First Call predicting a 3% gain to $8.89.