Lennar vs. D.R. Horton: Which Homebuilder Stock to Pick Right Now?

Core Insights - Homebuilding companies like Lennar Corporation and D.R. Horton are facing challenges in the housing market, despite a decrease in mortgage rates over the past year [1][3] - The current 30-year mortgage rate is 6.27%, down from 6.44% a year ago, but remains high, affecting affordability for homebuyers [1] Lennar Corporation - Lennar's market capitalization is approximately $32.1 billion, and it has experienced a decline in average selling price (ASP) of homes delivered, which fell by 6.7% year over year to $393,000 [5][6] - Home sale revenues for Lennar were $23.24 billion, down from $24.28 billion a year ago, indicating ongoing market uncertainties [5] - New orders increased by 6.5% year over year to 63,960, but gross margin fell by 430 basis points to 18% due to lower revenue per square foot and higher land costs [6] - Lennar is implementing strategies such as lowering ASPs and offering price incentives to sustain volume growth, although this has pressured profitability [6][7] - The partnership with Opendoor Technologies through the Trade-Up program is aimed at assisting buyers in purchasing new homes amid high mortgage rates [7] D.R. Horton - D.R. Horton has a market capitalization of approximately $45.8 billion and is actively working to mitigate the impacts of a slow housing market [8][9] - The company has invested $2.2 billion in land and lots to enhance its competitive position and improve capital efficiency [11] - D.R. Horton is offering incentives such as a 3.99% FHA loan to boost customer confidence and drive sales [9][12] - The home sales gross margin for D.R. Horton contracted by 130 basis points to 22.1% due to increased costs and incentive offerings, with expectations for Q4 2025 margins between 21% and 21.5% [12] Stock Performance & Valuation - D.R. Horton's stock performance has outpaced Lennar's over the past six months, and it trades at a discounted valuation compared to Lennar [13][15] - Lennar is trading at a premium valuation with a forward 12-month price-to-earnings (P/E) ratio higher than D.R. Horton [15] - The Zacks Consensus Estimate indicates a 40.5% year-over-year decline in Lennar's fiscal 2025 EPS, while D.R. Horton is expected to see a 17.6% decline [19][20][21] Investment Outlook - Lennar's fundamentals reflect margin compression and revenue declines, leading to a Zacks Rank 5 (Strong Sell) [22] - D.R. Horton, with a Zacks Rank 3 (Hold), shows stronger execution and capital discipline, making it a more attractive investment option amid a constrained housing market [22][23]