Moody's upgrades homebuilder Lennar
Moody's raised the company's overall corporate rating to B1 from B2 and the ratings on its senior unsecured notes and convertible senior notes was raised to B2 from B3.
The ratings outlook is positive, Moody's said, and reflects Lennar's largely successful mitigation of the risks outlined by Moody's at the time of its downgrades in 2008 and 2009 during an abysmal housing market that is now improving but still struggling.
Among other things, Lennar "improved its ability to generate net income even as the majority of its peers continued to rack up losses," Moody's said in its upgrade report.
"The B1 corporate family rating is supported by the company's industry-leading gross margins, its strong earnings performance in a weak housing environment, the diminished pace of impairment charges being booked, the slimming down of its joint-venture activities into a relatively few (for Lennar) critical land ventures, the substantial tangible equity base, and one of the homebuilding industry's more transparent disclosures of off-balance sheet activities," Moody's said.
Still, Moody's said the ratings incorporate Lennar's elevated debt leverage and the likelihood that cash flow from operations will continue being negative in fiscal 2012.
The ratings agency expects the homebuilder's volumes to rise moderately this year. But Moody's warns that if the spring selling season is a bust or if the economy shows signs of recession, the positive rating may disappear.
Lennar earned $30.3 million, or 16 cents a share, for the three months ended Nov. 30, 2011, down from $32 million, or 17 cents a share, a year earlier. It has been profitable for seven straight quarters.
Housing starts for the industry rose 1.5% in January, according to Commerce Department data, to the highest level since October 2008.
On a seasonally adjusted basis, starts increased to 699,000 from 689,000 for December, which was revised upward by 32,000. January housing starts rose 9.9% from 636,000 a year earlier.
Earlier this week, the National Association of Home Builders/Wells Fargo housing market index showed builder confidence at a four-year high in February.