Maybe companies are just better than they used to be. Maybe that's why stocks are so strong. I was pondering this thought as I tore through the always thoughtful Lennar (LEN) conference call, the dissection of still one more record breaking juggernaut of a three month period for this superb homebuilder with a huge $1.6 billion cash flow, more margin improvement and a 23% increase in orders.
Now I could single out any number of companies for still one more incredible performance. We seem to get a few every week now, companies that are just doing amazing things with every aspect of their business whether it be personalization and digitization or customer retention and streamlining.
But Lennar is a textbook case of what I am talking about because it is in a business that was notorious in the old days for taking way too many risks and doing stupid things like levering up at the top or building way too many homes or taking down way too much land inventory at the exact wrong time.
Lennar, long run like the family business that it was when Leonard Miller started it more than 60 years ago, never took the risks that so many of its compadres did because Leonard was one tough hombre. He taught his son, Stuart, well and Stuart steered his company through the downturn as well as could be possible.
Stuart wasn't content to just ride it out, though. He put through concrete changes, keeping the balance sheet lean, making sure that the company didn't get ahead of its skis. Homebuilders in general, though, have never been known for prudence and in a strong economy like this one they would typically be overbuilding in the hottest markets.
That's just not happening this time around. Even as rates are extraordinarily low, even as employment is strong, there's an innate caution developed from the Great Recession that keeps companies like Lennar on the straight and narrow no matter what.
I could say the same thing by the way about Toll Brothers (TOL) . It, too, is simply not taking advantage of all the capital it can get ahold of and putting up homes everywhere it can. Both Lennar and Toll care more about keeping debt levels low and manageable, and they buy back their stock rather than buying thousands of acres of speculative land.
It's that conservatism that runs through so many industries these days. They just aren't taking the chances they did before the Great Recession. They are always trying to save, they don't take gambles or risks that bet the company. You can hear the analysts almost cringe at the conservatism sometimes. I detect in these homebuilder calls that they wish these construction companies would tap the capital markets to build more homes right now! They aren't going to do it, though, not to satisfy Wall Street, because they have no desire to be held hostage to the Fed chief, the broader economy or the costs of labor and materials. They want to be in control.
A homebuilder is never going to be able to shake the importance of interest rates to his business. That's not going to happen. But one of the reasons why I don't fear a slowdown as much as I used to is because companies like Lennar fear it for me. It's been 10 years since the downturn and they are still running scared, and that maybe more than most other issues, is what makes me less worried if the slowdown that no one is seeing, occurs.
