Lennar Corp (LEN, Financial) has recently experienced a daily loss of 3.57%, yet it boasts a 3-month gain of 30.6%—a testament to its robust market presence. With an Earnings Per Share (EPS) sitting at 13.49, investors are prompted to consider whether the current market valuation of Lennar (LEN) accurately reflects its intrinsic value. Is the stock modestly overvalued as suggested by GuruFocus' metrics? Our valuation analysis seeks to answer this question and offers readers an in-depth examination of Lennar's financial standing.
Company Introduction
Lennar Corp (LEN, Financial) stands as the second-largest public homebuilder in the United States, trailing only behind D.R. Horton in terms of homes delivered. Primarily serving first-time, move-up, and active adult homebuyers under the Lennar brand name, the company's financial services segment further supports its clientele by offering mortgage financing and related services. With headquarters in Miami, Lennar also extends its reach into multifamily construction and has strategically invested in a variety of housing-related technology startups. When juxtaposed with the GF Value, an estimation of fair value, Lennar's current stock price of $149.28 suggests a modest overvaluation, prompting a deeper exploration into the company's true valuation.
Summarize GF Value
The GF Value is a proprietary measure, crafted to estimate the intrinsic value of a stock like Lennar (LEN, Financial). This valuation considers historical trading multiples, an adjustment factor from GuruFocus reflecting the company's past returns and growth, alongside projections of future business performance. The GF Value Line, visible on our summary page, indicates the stock's fair trading value. Should Lennar's stock price significantly exceed this line, it may be overvalued, hinting at potentially lower future returns. Conversely, a price well below the GF Value Line could signal undervaluation and the prospect of higher future returns. Currently, with Lennar's shares trading at $149.28, the stock appears modestly overvalued.
Given this relative overvaluation, the long-term return of Lennar's stock may trail behind the company's business growth. This is a crucial consideration for investors eyeing the stock for their portfolios.
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Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. It is vital for investors to assess a company's financial robustness before purchasing shares. Lennar's financial strength is commendable, with a cash-to-debt ratio of 0.92, outperforming 66.04% of peers in the Homebuilding & Construction industry. The company's overall financial strength is rated 8 out of 10, indicating a strong financial foundation.
Profitability and Growth
Investing in profitable companies, particularly those with consistent long-term profitability, is typically less risky. Lennar has maintained profitability for the past decade, with a 12-month revenue of $33.40 billion and an Earnings Per Share (EPS) of $13.49. The company's operating margin of 16.13% ranks higher than 79.25% of industry counterparts. Lennar's profitability score is a solid 9 out of 10.
Company growth is a pivotal factor in valuation, often correlating with a company's stock performance over the long term. Lennar's 3-year average revenue growth rate surpasses 75.25% of industry companies, while its 3-year average EBITDA growth rate of 43.2% ranks above 77.66% of the industry.
ROIC vs WACC
An insightful profitability metric involves comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Lennar's ROIC of 13.07% for the past 12 months notably exceeds its WACC of 11.17%, indicating effective cash flow generation relative to invested capital.
Conclusion
In summary, Lennar (LEN, Financial) is perceived to be modestly overvalued. However, the company's financial condition is robust, with strong profitability and competitive growth within the Homebuilding & Construction industry. For a more detailed look at Lennar's financials, you can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
