Berkshire Hathaway (BRK.A / BRK.B) has built a 10% stake in Lennar Corp. (LEN), the second largest homebuilder in the United States.
Berkshire Hathaway, a diversified holding company, bought 2.7 million Class A shares of Lennar over three trading days ended Sept. 21, bringing its position to 23.7 million shares worth $1.80 billion U.S., according to a regulatory filing.
The Omaha-based conglomerate that had been led for 60 years by Warren Buffett also owns 528,000 of Lennar’s Class B shares, which have 10 times the votes of a Class A share.
The stock purchases by Berkshire come as interest rates rise, which is hurting homebuilders by raising the rate on 30-year mortgages and decreasing affordability.
The average 30-year mortgage rate in the U.S. currently hovers around 7%, making it difficult for many people to qualify for a home mortgage from a bank.
Analysts say that the investment in Lennar is likely a long-term bet by Berkshire Hathaway on an eventual recovery in the housing market.
Berkshire already has a sizable presence in the homebuilding market, having acquired Taylor Morrison Homes earlier this year for $8 billion U.S.
Berkshire also owns building material companies, including paint maker Benjamin Moore and Johns Manville, a maker of roof tiles.
In 2003, Berkshire Hathaway bought Clayton Homes, a maker of manufactured and modular homes, for $2 billion U.S.
Owing to the weak housing market, Lennar recently reported disappointing financial results that sent its stock price down and likely caught the attention of Berkshire Hathaway.
For its fiscal third quarter, the homebuilder reported earnings per share (EPS) of $1.23 U.S., missing Wall Street’s consensus forecast of $1.29 U.S.
Lennar’s revenue in the quarter was down 8% from a year earlier.
Berkshire’s new CEO Greg Abel has spent this year deploying some of the company’s massive $367 billion U.S. cash pile.
The investment in Lennar was likely not directed by Warren Buffett as the 96-year-old businessman recently stepped down as chairman of Berkshire Hathaway’s board of directors.
LEN stock rose 6% on news of Berkshire Hathaway’s stake in the company. However, the share price is down 33% over the last 12 months and trading at $83.06 U.S. per share.
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