Construction Stocks

Lennar Corp Valuation – February 2019 $LEN

Company Profile (excerpt from Reuters): Lennar Corporation, incorporated on September 6, 1991, is a provider of real estate related financial services, commercial real estate, investment management and finance company. The Company is a homebuilder that operates in various states. The Company delivered 26,563 new homes as of November 30, 2016. The Company’s segments include Homebuilding East, Homebuilding Central, Homebuilding West, Lennar Financial Services and Lennar Multifamily. The Company is a developer of multifamily rental properties. Its Homebuilding operations include the construction and sale of single-family attached and detached homes, as well as the purchase, development and sale of residential land.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LEN – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,492,488,703 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 13.94 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 242.54% Pass
6. Moderate PEmg Ratio PEmg < 20 10.82 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.08 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 13.94 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.52 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.52
MG Growth Estimate 9.90%
MG Value $127.82
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $65.50
MG Value based on 0% Growth $38.40
Market Implied Growth Rate 1.16%
Current Price $48.90
% of Intrinsic Value 38.26%

Lennar Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.72 in 2015 to an estimated $4.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Lennar Corporation revealed the company was trading below its Graham Number of $70.12. The company pays a dividend of $0.16 per share, for a yield of 0.3% Its PEmg (price over earnings per share – ModernGraham) was 10.82, which was below the industry average of 20.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $21.62.

Lennar Corporation fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $21.62
Graham Number $70.12
PEmg 10.82
Current Ratio 13.94
PB Ratio 1.08
Current Dividend $0.16
Dividend Yield 0.33%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $20,924,569,000
Total Current Liabilities $1,500,988,000
Long-Term Debt $10,117,058,000
Total Assets $28,566,181,000
Intangible Assets $3,680,047,000
Total Liabilities $13,883,224,000
Shares Outstanding (Diluted Average) 325,755,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.95
Nov2018 $5.44
Nov2017 $3.38
Nov2016 $3.86
Nov2015 $3.39
Nov2014 $2.75
Nov2013 $2.11
Nov2012 $3.05
Nov2011 $0.47
Nov2010 $0.50
Nov2009 -$2.40
Nov2008 -$6.87
Nov2007 -$12.07
Nov2006 $3.62
Nov2005 $8.07
Nov2004 $5.59
Nov2003 $4.56
Nov2002 $3.44
Nov2001 $0.00
Nov2000 $1.62
Nov1999 $1.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.52
Nov2018 $4.12
Nov2017 $3.34
Nov2016 $3.22
Nov2015 $2.72
Nov2014 $2.18
Nov2013 $1.52
Nov2012 $0.46
Nov2011 -$1.91
Nov2010 -$3.22
Nov2009 -$4.03
Nov2008 -$3.34
Nov2007 -$0.40
Nov2006 $5.31
Nov2005 $5.55
Nov2004 $3.87
Nov2003 $2.73

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – April 2018
Lennar Corp Valuation – April 2018 $LEN
Lennar Corp Valuation – November 2016 $LEN
6 Best Stocks For Value Investors This Week – 5/14/16
Lennar Corporation Valuation – May 2016 $LEN

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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