Berkshire crosses 10% of Lennar and buys $212 million more stock in three days; shares jump 6.5%

Berkshire Hathaway now owns more than 10% of Lennar's Class A stock and bought about $212 million of the homebuilder's shares from September 17 to 21, according to Form 3 and Form 4 filings posted with the SEC on Monday. Lennar shares were up 6.5% at about $83.18 early Tuesday afternoon, from a $78.08 close, according to Nasdaq data. CNBC listed Lennar among the day's biggest movers on the disclosure.

What the filings show

The Form 3, dated September 17, is the filing a shareholder must make when it crosses 10% of a class of stock. It shows Berkshire's insurance subsidiaries holding 21,050,601 Class A shares and 453,196 Class B shares at that point, with National Indemnity the largest holder at 12.4 million Class A shares. Warren Buffett is listed alongside Berkshire as a reporting owner.

The Form 4 then lists 16 open-market purchase entries over three trading days, each a weighted average of several trades. Adding them up:

The weighted average price on the Class A purchases works out to about $77.46. At Tuesday afternoon's price, Berkshire's Class A stake is worth roughly $1.97 billion.

What the headline leaves out: the timing and the rules

Berkshire was buying a company whose earnings had just fallen sharply. Lennar reported on September 16 that third-quarter net earnings fell to $284 million, or $1.19 a share, from $591 million, or $2.29, a year earlier. New orders fell 9%, gross margin on home sales was 15.8%, and it cut its full-year delivery target to 80,000 to 81,000 homes from 82,000 to 83,000. Executive Chairman and CEO Stuart Miller said conditions had "deteriorated since our last earnings call." Lennar's average sales price was $372,000, and the company said that reflected about 12% in incentives.

The stock reflected that. Nasdaq data puts Lennar's 52-week range at $75.70 to $133.76, so Berkshire's buying came within a few dollars of the low, and even after Tuesday's jump the shares are about 38% below the high.

Crossing 10% also changes how Berkshire has to behave. As a 10% holder it is now a Section 16 insider at Lennar, which is why it filed a Form 3 and Form 4 rather than waiting for its quarterly 13F. From here, every purchase or sale has to be reported within two business days, and under the short-swing rule any profit from a purchase and sale matched within six months would have to be paid back to Lennar. In practice that means investors will see any further buying almost in real time, and it makes a quick flip unattractive.

Who it hits

For traders, the filing is a signal about one investor's view, not a change in Lennar's business: orders, margins and guidance are the same as they were last week. For home buyers, Lennar's own numbers are the more useful part. A builder offering incentives of about 12% to keep volume moving is a builder that is negotiating, and Miller said the company is prioritizing volume over waiting the market out. That matters as mortgage rates sit near 7%; see our piece on the industry's lending forecasts and our mortgage rate coverage. For the wider Berkshire picture, see our story on its leadership change.

Sources: SEC filings by Berkshire Hathaway and Lennar; CNBC; Nasdaq. Totals and averages calculated by The Company Chronicle from the Form 4. This is market information, not investment advice.