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However, when Wilson arrived to work early on Thursday morning and digested the details of the Lennar earnings surprise, he expected the market would react modestly, and Lennar shares wouldn’t move much. Instead, Lennar shares have surged 14% on Thursday on five times its average daily volume of trading, and the earning surprise has buoyed the entire homebuilding sector.

“My interpretation of these results would not have been a double-digit stock spike for Lennar,” Wilson said, adding, “without the tax benefit, it was another quarterly loss.”

Indeed, Lennar was able to engineer a profit in the fourth quarter of 19 cents due to a one-time tax gain of $1.34 — which it also offset with some huge losses to bring the net tax gain of 45 cents. The First Call consensus had been a 48-cent loss per share for Lennar. “I would hate to think the stock has moved this much just because they printed a gain of 19 cents, because so much of it is the tax gain,” Wilson said.

Maybe the most interesting, and puzzling, market response to the Lennar earnings would be if investors were driving the stock higher in response to the fact that Lennar used the one-time tax gain as a way to load up on tax losses in the fourth quarter. Wilson explained that when a company can use tax losses to offset gains that will ultimately help to make future quarters look better also. It’s a tactic typical in the banking sector.

“The banks have been doing this for years,” Wilson said. However, the skepticism that the banks usually face when they dump losses en masse into a quarter to offset gains isn’t skepticism that Lennar faced on Thursday.

 

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