Bar Falls into LEN Earnings, Shares Hit 3-Year Low

0:00We're back on Morning Trade Live, let's focus on Lanar. The HomeBuilder reports earnings after the close will take a closer look at that coming up next with Marley, but this chart is not standing on a firm foundation. Lanar is down more than 15% this month and hit a new 52 week low at the open, so that is a very, very uncomfortable chart there. Other HomeBuilders have been weak to start the year and Lanar has, by far, been hit the hardest. The focus of the Morning Trade, joining us for a closer look now, is Marley, very good morning to you, Marley. So for the Lanar, we've seen the charts, how low is the bar going into this report, what can we expect? It's about as low as it could possibly be, Sam, you know, it's a, it's a pretty battered chart. You just showed it. Expectations very low here, analysts projecting about a 55% year over year decline in terms of the EPS number. They're expecting it to be about 96 cents. That's down from $2.14 in the year ago period. Our bottom line expected to have weakened significantly during the fiscal first quarter

1:00compared with that year ago period, because of its increased incentive offerings that it's having to offer in this, this complicated market right now, also having to lower their average home sale price. That's another expectation for this report to boost their sales volume in an attempt to try to improve some of these numbers. With the fluctuating mortgage rate and affordability crisis environment that the housing market currently has in the US, Lanar shows the path of sacrificing its margins to boost home delivery numbers, which likely has been adverse for the company in the near term. With that expected focus on volume over price, deliveries are forecasted to be between 17 and 18,000 homes, which would be in line with the year ago quarter, but that average sales price will be down somewhere between 365 and 375,000. In the year ago quarter, it was closer to 410,000. Their top line performance also have expected to decline about 10% year over year because of that lower home sales revenue, with that lower average selling price, analysts expecting

2:01about 6.83 billion in revenue for the quarter, that's down from 9.37 billion, just in the previous quarter and 7.63 billion in the year ago quarter. Home building revenues, which are roughly about 95% of their previous quarter revenues expected to decline also about 10% year over year. But they expect their home sales gross margin as well to be between 15 and 16%, that's also down from the 18.7 that they saw a year ago. They've made some technological investments that are likely going to put some pressure on margins in the near term. They have a significant drag on operating leverage. They've made up higher marketing and selling expenses. They're also expected to have higher SGNA expenses this quarter, so their SGNA expenses are expected to be about 9.5%, that's a percent year over year, so that should weigh on margins as well. And Sam, you mentioned how low is the bar here. They've only beat estimates in one of the last four quarters, and I do not think that is

3:01the setup for today in terms of what I saw from the sell side. It's a tough time for some of these home builders given the environment. Thanks so much for that, Marley. Let's trade it now with Joe Tige, portfolio manager of the rational equity arm of fund. A very good morning to Joe, not a great morning for some of these home builders. It'll be the next test with Lina's earnings. I mean, as Marley said there, you've got a challenging housing environment. Obviously, we've seen that mortgage rate taking up once again this week, and look margins are the big story. So how would you approach an example trade for this chart, which looks pretty tough? Yeah, and you got to stick with the trend, in my opinion, here just lower, and it's been a tough go of it. I think I expect more of that. There's no reason to think that it's changing any time soon, and yes, it's been a bad environment for the home builders, but just lately this past two weeks. It's been a very bad environment for stocks in general. It's going to be major headwinds into this earnings event. So I'm just looking for a little bit of downside protection here through this earnings event,

4:0395, 90, put spread in March is what I was looking to do, defined risk just to the downside. Maybe they have agreed earnings, and it pops up. That'd be great. Of course, for the stock, I'll be limited to the premium I pay for my put spread. But just looking for a little more downside, unfortunately, in Lunar, just having that on there just gives me a little bit of protection throughout everything I'll say on. Okay, good look at Lenard there, and I mean, look, it is down alongside all the other home builders as well. We know some of the incentives have weighed on margins, but yes, a tough time for some of these guys, particularly as housing just hasn't bounced back, you know, the way that everybody had hoped or at least it's fast. Just thought on the overall market today as we continue to track these headlines out of the Middle East at Joe. Yeah, there's more uncertainty. We've seen volatility peak around mid-low 30s. We're at 27 in the VIX index right now. So a lot of uncertainty, people don't know what's going to happen next. We had oil 119 very briefly to start the week.

5:06Came all the way back down to below 90. Now we're back in the mid to high 90s going higher. So just uncertainty, when is this going to end? How long is this going to last? Right now it's doing some short-term damage, of course, to the economy, this high oil prices. I think a very steep increase to past 120, maybe to 150. That could do a lot more very sharp damage, could bring us immediately into a recession. The LAT lingers are for very long. Staying here in the below 180 to 100, maybe we can get through that. It's very, very tough to do so. It might slowly grind the economy down. It might cost some circulation. I think a sharp increase quickly brings the economy down. And, of course, economic slowdown might lead to deflation, actually. So it's interesting the two dynamics were caught in a bad spot right here. Oil, this price is not good. Yeah, high oil prices, higher expectations as far as yields are concerned. Rates are staying higher as well. I mean, it seems to be very much weighing on risk appetite today.

6:09In fact, the SPX is just rolled over as far as that 6,700 mark is concerned. Hasn't been able to hold that this morning. Joe, always appreciate it. Thanks so much for your thoughts this morning. Jotigay portfolio manager over at the Rational Equity Armour Fund.