Lennar and Toll Brothers Shares Are Soaring, What You Need To Know

What Happened?

A number of stocks jumped in the afternoon session after peer, D.R. Horton reported strong quarterly results. The positive sentiment lifted the entire homebuilding sector after D.R. Horton, delivered strong third-quarter results that surpassed analyst expectations. This news appeared to overshadow broader concerns about the housing market, which included reports of stubbornly high mortgage rates and a potential slowdown.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Home Builders company Lennar (NYSE:LEN) jumped 8%. Is now the time to buy Lennar? Access our full analysis report here, it’s free.
• Home Builders company Toll Brothers (NYSE:TOL) jumped 7.9%. Is now the time to buy Toll Brothers? Access our full analysis report here, it’s free.

Zooming In On Lennar (LEN)

Lennar’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 4 months ago when the stock dropped 6.7% on the news that the company reported weak first-quarter 2025 results, with its backlog declining 22% year over year, raising concerns about the strength of its near-term sales pipeline. The more pressing issue, however, was the sharp decline in gross margin, driven by rising land costs and a slight drop in home prices. 

Also, while sales increased by 5%, supported by a 6% rise in home deliveries, the company had to rely on incentives, such as interest rate buydowns, which involve paying an upfront fee to reduce mortgage rates. This strategy came at a cost, leading to lower operating margins and resulting in a more than 20% year-over-year drop in EPS. Looking ahead, Lennar expects to deliver up to 20,500 homes in the second quarter, with gross margins projected to remain around 18%, reflecting continued pricing pressures. 

Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives.

Lennar is down 12% since the beginning of the year, and at $118.19 per share, it is trading 38.6% below its 52-week high of $192.45 from September 2024. Investors who bought $1,000 worth of Lennar’s shares 5 years ago would now be looking at an investment worth $1,666.

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