With a daily loss of -3.3% and a 3-month gain of 4.29%, Lennar Corp (LEN, Financial) has an Earnings Per Share (EPS) of 14.65. The question that arises is: is the stock fairly valued? In the following analysis, we will explore the valuation of Lennar (LEN) to answer this question.
Company Overview
Lennar Corp (LEN, Financial), the second-largest public homebuilder in the United States, is a Miami-based company that targets first-time, move-up, and active adult homebuyers mainly under the Lennar brand name. It also offers mortgage financing and related services to its homebuyers and is involved in multifamily construction and numerous housing-related technology startups. The company's stock price is $118.62, with a market cap of $33.70 billion, indicating that the stock appears to be fairly valued when compared to its GF Value of $118.05.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to the GuruFocus Value calculation, Lennar (LEN, Financial) appears to be fairly valued. This means that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Lennar has a cash-to-debt ratio of 0.86, which ranks better than 59.05% of companies in the Homebuilding & Construction industry. Based on this, GuruFocus ranks Lennar's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Lennar has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $33.60 billion and Earnings Per Share (EPS) of $14.65. Its operating margin is 17.43%, which ranks better than 80.56% of companies in the Homebuilding & Construction industry. Overall, the profitability of Lennar is ranked 10 out of 10, which indicates strong profitability.
Growth is one of the most important factors in the valuation of a company. Lennar's 3-year average revenue growth rate is better than 76.24% of companies in the Homebuilding & Construction industry. Lennar's 3-year average EBITDA growth rate is 43.2%, which ranks better than 78.72% of companies in the same industry. This indicates a strong growth performance.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also evaluate its profitability. During the past 12 months, Lennar's ROIC is 14.55 while its WACC came in at 9.74, indicating that the company is likely creating value for its shareholders.
Conclusion
In conclusion, the stock of Lennar Corp (LEN, Financial) appears to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 78.72% of companies in the Homebuilding & Construction industry. To learn more about Lennar stock, you can check out its 30-Year Financials here.
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