We recently published an article on the 7 Best Construction Stocks To Buy According to Analysts. In this article, we will look at where Lennar Corporation (NYSE:LEN-B) ranks among the best construction stocks to buy according to analysts.
The recent 50 basis point rate cut has given a significant boost to the market and put a lot of industries into focus. The construction industry could also benefit significantly from the cuts as lower interest rates reduce borrowing costs, increase demand for real estate, encourage infrastructure investment, and boost consumer spending. This leads to more construction projects and supports overall growth in the sector.
According to a Research and Markets report, the U.S. construction industry is set to grow by 5.6% in 2024, reaching $1.27 trillion, with a projected annual growth rate of 4.7% through 2028, reaching $1.53 trillion. The growth is supported by government policies focused on infrastructure development and efforts to bring manufacturing back to the U.S. Despite some cost pressures, major projects such as data centers and infrastructure investments are expected to drive industry growth.
Population Shifts and Industry Trends Reshape U.S. Construction Outlook
According to FMI corporation’s 2024 North American Engineering and Construction Outlook: Third Quarter, U.S. construction in 2024 is expected to surpass $2 trillion for the first time, a 6% increase from 2023. However, growth is projected to slow to around 3-5% annually over the next five years.
In residential construction, a mixed trend is emerging, with single-family home construction projected to grow by 7%, while multifamily construction may decline by 25%. Non-residential construction is set for 6% growth, driven by public safety and manufacturing sectors, each seeing over 20% growth. Heavy civil sectors, like power and transportation, are expected to rise by 8%.
The report emphasizes the influence of population shifts on construction activity, especially as people move from states like California and New York to Texas and Florida, which could boost construction in those regions. Despite future slowing growth, FMI noted that the upcoming five years will still mark some of the highest levels of construction spending since 1965.
The report discusses how political backing for renewable energy, electric transportation, and power systems will persist, with grid planners projecting a 5% annual growth rate through 2028. Data center power needs are expected to triple by 2030, while the oil and gas sector continues to expand infrastructure.
Infrastructure spending will remain elevated, although growth may slow as Infrastructure Investment and Jobs Act (IIJA) funds taper off after 2026. Bridge investments are leading highway construction projects, and future political discussions may increase funding for infrastructure.
Moreover, the EPA has identified a $630 billion funding gap for wastewater infrastructure, and the U.S. will need $650 billion over 20 years to improve water systems, mainly for repairing distribution networks. Federal funding from the IIJA and programs under the Safe Drinking Water Act will help support these projects. Investments in dams and coastal protection are also growing, focusing on environmental protection and resilience.
Our Methodology
For this article, we identified nearly 40 construction stocks through ETFs and stock screeners with a market cap of over $5 billion. We narrowed our list to 7 stocks with the highest average analyst price target, as of September 25. Finally, we also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Lennar Corporation (NYSE:LEN-B)
Average Analyst Price Target Upside: 21.69%
Number of Hedge Fund Holders: 60
Lennar Corporation (NYSE:LEN-B) is one of the largest homebuilders in the United States and is headquartered in Florida. It has a diverse portfolio that includes investments in both multifamily and single-family residential rental properties, luxury developments, property technology through its LenX division, and mortgage services.
The company’s innovative approach to homebuilding is demonstrated by its “Everything’s Included” program, which integrates desirable features into homes at no additional cost. The initiative aims to improve customer satisfaction by providing modern amenities such as smart home technology and energy-efficient appliances right from the start.
Lennar (NYSE:LEN-B) reported solid results for the third quarter on September 19 as it achieved net earnings of $1.2 billion, or $4.26 per diluted share, which represented a 10% increase year-over-year and outperformed the analyst expectations by $0.63 per share. Moreover, the company’s revenue of $9.4 billion was up almost 8% year-over-year and exceeded the forecasts by $240 million.
Some major highlights include a 5% increase in new orders, totaling 20,587 homes, and a backlog of 16,944 homes valued at $7.7 billion. Deliveries rose by 16% to 21,516 homes, contributing to total revenues of $9.4 billion. Homebuilding operating earnings stood at $1.5 billion, with a gross margin of 22.5%. The company ended the quarter with $4.0 billion in cash and cash equivalents for homebuilding and no outstanding borrowings on its $2.2 billion revolving credit facility.
The company’s executive chairman, Stuart Miller highlighted the favorable economic conditions for homebuilders and mentioned the strong demand driven by solid employment and a chronic housing supply shortage. The company expects to deliver between 22,500 and 23,000 homes in the fourth quarter. It also remains committed to strengthening its balance sheet and pursuing its land-light strategy, with total liquidity exceeding $6.2 billion.
Overall, LEN-B ranks 2nd on our list of the best construction stocks to buy according to analysts. While we acknowledge the potential of LEN-B as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article was originally published on Insider Monkey.