Lennar (LEN)

Homebuilder Lennar (NYSE:LEN) fell short of the market’s revenue expectations in Q1 CY2026, with sales falling 13.3% year on year to $6.62 billion. Its GAAP profit of $0.93 per share was 3.2% 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)

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Lennar’s 7.3% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Lennar’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.7% annually.

Lennar also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Lennar’s backlog reached $6 billion in the latest quarter and averaged 11.4% 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 missed Wall Street’s estimates and reported a rather uninspiring 13.3% year-on-year revenue decline, generating $6.62 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

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 23.2% gross margin over the last five years. That means Lennar paid its suppliers a lot of money ($76.77 for every $100 in revenue) to run its business.

Lennar produced a 19.1% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, Lennar’s full-year margin has been trending down over the past 12 months, decreasing by 4.2 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).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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 14.5%. 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 12 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.

In Q1, Lennar generated an operating margin profit margin of 5.1%, down 4 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.

Sadly for Lennar, its EPS declined by 6.7% annually over the last five years while its revenue grew by 7.3%. 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.

We can take a deeper look into Lennar’s earnings to better understand the drivers of its performance. As we mentioned earlier, Lennar’s operating margin declined by 12 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 30.3% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Lennar reported EPS of $0.93, down from $1.98 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 $7.02 to grow 2.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Lennar has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 7.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Lennar’s margin dropped by 8.2 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 16.1%, 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. Unfortunately, Lennar’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

We struggled to find many positives in these results. Its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 1.1% to $92.25 immediately after reporting.

Updated: March 12, 2026 at 5:11 PM EDT

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. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. While its strong operating margins show it’s a well-run business, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Lennar’s P/E ratio based on the next 12 months is 12.8x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $108.21 on the company (compared to the current share price of $92.25).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.