Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access all our platforms from a single account.
Lennar outlook strengthens amid acceptance of new normal
Peter Garnry
Chief Investment Strategist
Summary: Lennar excited investors last night with a much stronger than estimated new orders outlook as the US consumer remains confident about the future and has accepted the new normal on interest rates. The strong underlying demand for new homes in the US is driven by a decade long production deficit which has led to a chronic supply shortage.
Key point in this equity note:
- Lennar announces strong outlook for new orders smashing estimates in a signal that demand is accelerating again despite worries of high interest rates.
- US homebuilders will continue to see strong demand in the years to come as a decade of production deficits have caused a chronic supply shortage.
Strong outlook for new orders
The US homebuilder Lennar reported last night FY23 Q2 results (ending 31 May) with revenue at $8bn vs est. $7.3bn and adjusted EPS of $2.91 vs est. $2.31 driven by strong execution and a strategy of offering more affordable houses amid higher interest rates. Lennar published Q3 outlook on new orders in the range 18-19,000 vs est. 15,700 as demand is beginning to accelerate again as the consumer has come to accept the “new normal” in terms of financing conditions for housing. Investors were excited about the outlook sending Lennar shares up 2% in extended trading.
While revenue is expected in the current fiscal year to land around $29.7bn down from $33.7bn the year before, the share price is hovering around all-time highs suggesting the equity market is bullish on the outlook for US homebuilders. Lennar has zero net debt and a forward expected free cash flow yield around 6% suggesting a balanced valuation against the economic backdrop. New orders in Q2 hit 17,812 which was a new record highlighting the strength in the US economy.
Lack of inventory keeps the market sound
US homebuilders have been an interesting observation over the past 18 months. From late 2021 to mid-2022 the initial interest rate shock drove down US homebuilders more than the market as investors feared that the industry would be pushed into a tough environment. However, by early October 2022 the market stabilised as Lennar saw signs of stabilisation. Since then, US homebuilders including Lennar have outperformed the S&P 500 and the market is back to focusing on the key underlying driver of earnings growth for US homebuilders which is the housing deficit.
Existing inventory of houses for sale has been around 1.12mn homes over the past 12 months which is a 37% reduction from the levels from before the pandemic. A decade of production deficits have pushed the US housing market into a chronic supply shortage which underpins demand for new homes and especially on those with affordable prices. Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...