Lennar (LEN)

Homebuilder Lennar (NYSE:LEN) announced better-than-expected revenue in Q4 CY2025, but sales fell by 5.8% year on year to $9.37 billion. Its GAAP profit of $1.93 per share was 12.6% below analysts’ consensus estimates.

Company Overview

One of the largest homebuilders in America, Lennar (NYSE:LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Competitors of Lennar include D.R. Horton (NYSE:DHI), PulteGroup (NYSE:PHM), and KE Home (NYSE:KBH)

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Lennar grew its sales at a decent 8.7% compounded annual growth rate. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Lennar’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

Lennar also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Lennar’s backlog reached $5.2 billion in the latest quarter and averaged 16.6% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Lennar’s revenue fell by 5.8% year on year to $9.37 billion but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Lennar has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.8% gross margin over the last five years. Said differently, Lennar had to pay a chunky $76.25 to its suppliers for every $100 in revenue.

Lennar’s gross profit margin came in at 21% this quarter, down 1.5 percentage points year on year. Lennar’s full-year margin has also been trending down over the past 12 months, decreasing by 3.5 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Lennar has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Lennar’s operating margin decreased by 10.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Lennar generated an operating margin profit margin of 7.8%, down 5.9 percentage points year on year. Since Lennar’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Lennar’s flat EPS over the last five years was below its 8.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Lennar’s earnings can give us a better understanding of its performance. As we mentioned earlier, Lennar’s operating margin declined by 10.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Lennar, its two-year annual EPS declines of 24% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q4, Lennar reported EPS of $1.93, down from $4.10 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Lennar’s full-year EPS of $8.05 to grow 11.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Lennar has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.3% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Lennar’s margin dropped by 13.3 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Lennar hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.2%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Lennar’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

We enjoyed seeing Lennar beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed and its backlog fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 3.9% to $113.06 immediately following the results.

Updated: December 16, 2025 at 10:57 PM EST

Before deciding whether to buy Lennar or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Lennar falls short of our quality standards. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s strong operating margins show it’s a well-run business, the downside is its declining operating margin shows the business has become less efficient.

Lennar’s P/E ratio based on the next 12 months is 13.2x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $127.13 on the company (compared to the current share price of $112.65).