Will Lennar Corp. (LEN) Fall On Earnings?

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Lennar Corp. (LEN) is a Miami based residential construction corporation and home builder. At the time of this post (9:00AM CST), LEN is currently trading at 45.67, down 1.32% on the day. LEN is down this morning with the broader market, but also fell significantly in yesterday’s session after fellow home builder KB Home (KBH) reported a significant fourth quarter earnings miss. KBH CEO Jeffrey Mezger also released commentary yesterday indicating that weaker than expected profit margins could prevail into the foreseeable future, plunging the stock down nearly 16% to two year lows. LEN still remains in the upper portion of its 52 week trading range of 35.74-48.52, and is scheduled to report earnings tomorrow, 1/15/2015 before the opening bell.

Over the last eight quarters of earnings data available, LEN has traded mostly bullishly following earnings, moving higher on five out of eight sessions immediately following the EPS release. The average historical move over this same time period was 3.2%. The options market is currently pricing in a slightly larger than average implied move of approximately 5.43% in the stock by this Friday’s monthly options expiration, which would represent roughly a $2.50 change in the price of the stock over the next three trading days. While LEN has traded fairly bullishly over the last eight quarters of earnings, following the comments out of KBH yesterday regarding softening demand and weaker than expected profit margins for the home builder, I will certainly be leaning bearish this name going into earnings. I will subsequently be looking to establish a short position in LEN before today’s close.

Potential Trade: Long LEN Jan 44-43 Put Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $43.75

Andrew Keene

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