Lennar Corp (LEN, Financial) experienced a daily loss of 2.97%, with a 3-month gain of 6.46% and an Earnings Per Share (EPS) of 14.65 as of August 25, 2023. The key question we aim to answer is: Is Lennar stock fairly valued? This article provides an in-depth analysis of Lennar's valuation, encouraging readers to delve into the financial intricacies of this leading homebuilder.
A Snapshot of Lennar Corp (LEN, Financial)
Lennar, the second-largest public homebuilder in the United States, targets first-time, move-up, and active adult homebuyers mainly under the Lennar brand name. Lennar's financial-services segment provides mortgage financing and related services to its homebuyers. The Miami-based company is also involved in multifamily construction and has invested in numerous housing-related technology startups. With a market cap of $31.90 billion and sales of $33.60 billion, the company's stock price stands at $112.45, close to its GF Value of $117.89, indicating a fair valuation.
Understanding the GF Value of Lennar (LEN, Financial)
The GF Value is a unique valuation model that considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this method, Lennar's stock is believed to be fairly valued. The stock's current price of $112.45 per share aligns closely with the GF Value, indicating that the long-term return of its stock is likely to be close to the rate of its business growth.
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Evaluating Lennar's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. A good initial perspective on the company's financial strength can be obtained by looking at the cash-to-debt ratio and interest coverage. Lennar has a cash-to-debt ratio of 0.86, which ranks better than 59.05% of 105 companies in the Homebuilding & Construction industry. Based on this, GuruFocus ranks Lennar's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth Prospects of Lennar
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Lennar has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $33.60 billion and an Earnings Per Share (EPS) of $14.65. Its operating margin is 17.43%, which ranks better than 80.56% of 108 companies in the Homebuilding & Construction industry. Overall, the profitability of Lennar is ranked 9 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Lennar is18.5%, which ranks better than 76.47% 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.
Comparing Lennar's ROIC and WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Lennar's ROIC was 14.55, while its WACC came in at 9.61.
Conclusion
In summary, Lennar's stock is believed to be fairly valued. The company's financial condition is fair, and its profitability is strong. 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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