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Investing.com -- Fitch Ratings has revised Lennar Corporation (NYSE:LEN)’s outlook to positive from stable while affirming its Long-Term Issuer Default Rating (IDR) at ’BBB+’, the rating agency announced Tuesday.
The outlook revision reflects Lennar’s successful execution of its land-light strategy, which has significantly reduced its owned lot position while maintaining low leverage and excellent financial flexibility.
Fitch also affirmed the ’BBB+’ issue ratings on Lennar’s senior unsecured notes and revolving credit facility. The rating agency indicated it may consider upgrading Lennar’s IDR to ’A-’ if the company continues to sustain low leverage and generate strong cash flow while maintaining disciplined capital allocation.
As of February 28, 2025, Lennar’s net debt to capitalization was just 0.8%, excluding $250 million of cash classified by Fitch as not readily available for working capital. Fitch expects this ratio to remain below 5% in the coming years, with EBITDA leverage projected to settle between 1x-1.3x in fiscal years 2025 and 2026.
Lennar’s land-light strategy is viewed positively by Fitch as it reduces carrying costs and should minimize impairments during housing downturns. As of the first quarter of 2025, Lennar controlled 585,000 lots with only 9% owned and 91% controlled through options, representing a 7.2-year lot supply including just 0.6 years of owned land – among the lowest in Fitch’s coverage.
The company has lot option agreements with Millrose Properties, Inc., a publicly traded real estate investment trust that was spun off in February 2025. These arrangements include monthly option fees and pooling provisions that could make it more difficult to exit certain options.
Fitch expects Lennar’s EBITDA margins to decline more than previously anticipated due to higher incentives needed to drive demand. The agency forecasts EBITDA margins to fall 350 to 400 basis points in fiscal 2025 to between 9.5% and 10.5%, compared to 14.2% in fiscal 2024 and 16.5% in fiscal 2023.
Despite margin pressure, Lennar’s shift to a more land-light strategy has resulted in consistent cash flow from operations (CFO). The company generated a CFO margin of 7% in fiscal 2024 and 15.6% in fiscal 2023. Fitch expects lower CFO in fiscal 2025 due to one-time expenses related to the Millrose spin-off, with a projected CFO margin of 6%-7% in fiscal 2026.
Lennar’s financial position remains strong with $2.28 billion in homebuilding cash and no borrowings under its $3.02 billion revolver. The company has been actively repurchasing shares, buying back $774.5 million of stock during the first quarter of 2025 and $2.26 billion in fiscal 2024. Fitch’s forecast assumes share repurchases of $1 billion in fiscal 2025 and $2 billion in fiscal 2026.
As the second-largest U.S. homebuilder, Lennar delivered almost 81,000 homes for the twelve months ended March 31, 2025. The company maintains a high level of speculative building activity, with approximately 25,000 spec homes at the end of the first quarter of 2025, including 3,100 finished homes.
Fitch anticipates the housing market will remain constrained through 2025 due to affordability challenges and economic headwinds. The agency projects Lennar’s revenues to grow 1%-2% in fiscal 2025 and 4.5%-5.5% in fiscal 2026.
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