Lennar (NYSE:LEN)
We have long considered Lennar, which is led by Executive Chairman Stuart Miller, the best homebuilder managed by the best team of industry veterans. We initiated our investment shortly after Lennar announced its acquisition of its peer, CalAtlantic. The local market scale created through this transaction will unlock several opportunities to improve unit economics, returns on capital, and accelerate cash flow generation. Management is already ahead of their plans to eliminate duplicative expenses, renegotiate contracts to lower construction costs, and improve production efficiency and sales velocity. Lennar is also ahead of its peers in investing in technology and capabilities to greatly reduce customer acquisition costs, expand financial services, and lower commission rates.
Early in the cycle, Lennar made smart investments in ancillary businesses, many of which do not contribute to earnings and are not valued by investors. As these businesses are monetized and result in several billion dollars of proceeds, Lennar’s low valuation will become apparent. Taking into consideration Lennar’s strong integration execution and housing industry fundamentals that support several more years of a positive cycle, we believe buying Lennar’s core homebuilding operation at close to 6x pro forma earnings is a bargain.
From Daniel Loeb (Trades, Portfolio)'s first quarter 2018 shareholder commentary.
