Lennar (LEN, Financial), with its balanced operating strategy, seems well positioned for better delivery of results in the future. The company is confident of achieving this milestone on the back of solid performance in the recently reported fourth quarter. Lennar mainly surged due to impressive performances by its segments. Lennar is expecting to gain market share in the future as it is optimistic about the growing market. It sees a lot of opportunities that can further support its growth story. The housing market is expecting to recover in the future with growing demand. This will also strengthen Lennar’s long-term prospects. Let us have a look at the overall business of Lennar and recovering housing market.
A closer look at the end market
The housing market is recovering, but it seems that it is still in the early phases of its recovery because of certain macroeconomic factors. But many analysts are expecting the housing market to return to its glory in the future which is a good sign for housing companies and Lennar is no such exception. So the company might suffer in the short term but in the long term it is expected to soar.
Home building and financial services are the key areas of operation for Lennar. Lennar will be focusing on these two areas primarily in 2015 and 2016. Besides this, it is laser focusing on moderating growth with a preference on ROIC which will drive the cash flow, strengthening its balance sheet. Lennar will also be looking to gain market share in the future. Regarding this, it has already developed a well-diversified platform that is helping Lennar to gain much market share.
Improving its bottom line
Lennar is now focusing on various initiatives to improve its profitability. Under this, Lennar has already sold its first two apartment communities in 2014 which reflected in the results also. The company seems well positioned to sell five other communities in 2015. In addition, Lennar is also looking to create a multifamily fund. This seems to be another wise move by the company which is expected to drive its long-term prospects.
But the company is prone to some headwinds also. As the market is in a slow recovery, Lennar is expecting some contraction in the margins due to the competition from its peers and also due to some additional legacy land assets in its portfolio offering. However, it expects the margins to improve on the back of its Next Gen offering. This is because it is growing at an impressive rate of 38%, and the company has further plans to offer Next Gen in 205 communities in 14 states.
Conclusion
Now moving on to the fundamentals, the stock is trailing with 17.35, which is cheap, and the forward P/E of 13.93 shows impressive earnings growth in the near term. Since the recovery in the housing market is slow, Lennar’s growth is expected to be moderate in the near term but in the long term when the market recovers, it can be a strong long-term holding. Its earnings in the next five years are growing with a CAGR of 15.18% which is more than the industry average of 6.24%. All these suggest that Lennar is a good stock to choose now, but I suggest that investors wait for some more concrete signs of the stock gaining market share in the future.
