Lennar (LEN, Financial) recently experienced a daily loss of -4.32%, with a 3-month gain of 3.9%. Its Earnings Per Share (EPS) stands at 14.65. The question that arises is: Is the stock fairly valued? This article will provide an in-depth analysis of Lennar's valuation, encouraging readers to delve into the financial details and make informed investment decisions.
Company Introduction
Lennar Corp (LEN, Financial) is the second-largest public homebuilder in the United States, targeting first-time, move-up, and active adult homebuyers mainly under the Lennar brand name. Its financial-services segment provides mortgage financing and related services to its homebuyers. Lennar is also involved in multifamily construction and has invested in numerous housing-related technology startups. With a current stock price of $115.45 and a market cap of $32.80 billion, we will compare this to Lennar's GF Value, an estimation of fair value, to provide a comprehensive analysis of the company's intrinsic worth.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock derived from our exclusive method. The GF Value Line provides an overview of the fair value that the stock should be traded at, 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.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
This method suggests that Lennar (LEN, Financial) appears to be fairly valued. The GF Value is GuruFocus' estimate of the fair value at which the stock should be traded. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
As Lennar is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth. For insights into companies that may deliver higher future returns at reduced risk, check out these companies.
Assessing Lennar's Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. It is important to review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Lennar has a cash-to-debt ratio of 0.86, which is better than 57.55% of 106 companies in the Homebuilding & Construction industry. GuruFocus ranks the overall financial strength of Lennar at 7 out of 10, indicating fair financial strength.
Analyzing Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. 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 81.65% of 109 companies in the Homebuilding & Construction industry. Overall, GuruFocus ranks the profitability of Lennar at 9 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Lennar is 18.5%, which ranks better than 77.45% of 102 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth is 43.2%, which ranks better than 78.95% of 95 companies in the Homebuilding & Construction industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Lennar's return on invested capital is 14.55, and its cost of capital is 9.89.
Conclusion
In conclusion, the stock of Lennar (LEN, Financial) shows every sign of being fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 78.95% of 95 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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