After a strong performance in fiscal 2014 and 2015, Lennar Corporation (LEN Quick QuoteLEN - Free Report) delivered outstanding operating results in fiscal 2016 which continued into the first-quarter fiscal 2017 as well.

The $12.35 billion company, engaged in homebuilding and financial services, has strengths in several key areas. Lennar currently has as a Zacks Rank #2 (Buy) and we are looking out for above-average returns from the company over the next few months.

What’s Working in Favor of the Stock?

Stock Price Movement

Lennar has been seeing solid activity on the price front of late, leading to a Momentum Style Score of ‘A’. The company’s shares returned 19.4% year to date, comparing favorably with the industry, which gained 19% over the same time frame. Going forward, diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage should drive the stock’s performance.

Earnings & Revenues: History and Future Estimates

Lennar has beaten earnings and revenues estimates for five quarters in a row. The company’s recently reported first-quarter fiscal 2017 adjusted earnings and revenues surpassed the Zacks Consensus Estimate by 5.4% and 6.4%, respectively.

Furthermore, upward estimate revision reflects optimism in the stock’s prospects. Fiscal 2017 estimates moved north over the last two months, reflecting one upward and no downward revision. Similarly, 2018 earnings estimates increased over the past two months as a result of one upward revision against none moved lower.

Fiscal 2017 earnings are expected to grow 9% while revenues are expected to witness 5.6% growth.

Valuation Looks Reasonable

Lennar has a Value Style Score of ‘A’, putting it in the top 20% of all stocks we cover from this look. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

Lennar currently has a trailing 12 month Price-to-book (P/B) ratio of 1.71, comparing favorably with the construction sector which stands at 3.22. P/B ratio is the most suitable multiple for valuing homebuilders because of their asset-driven nature. Hence, Lennar’s lower-than-market positioning calls for more upside in the quarters ahead.

Looking at sales, the company is currently trading at a P/S ratio of 1.12, much lower than the industry average which stands at 3.10. Some prefer this metric over other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.

All these ratios deem the company undervalued in comparison to its peers and thus indicate a good time to buy.

Solid ROE: Lennar’s trailing 12-month Return on Equity (“ROE”) ratio is 12.78% compared to the industry average of 9.73%. This indicates that the company reinvests more efficiently as compared to its peers.

Other Key Picks

Other favorably ranked stocks in the construction sector include PulteGroup, Inc (PHM Quick QuotePHM - Free Report) , NVR, Inc. (NVR Quick QuoteNVR - Free Report) and D.R. Horton, Inc. (DHI Quick QuoteDHI - Free Report) .

PulteGroup and NVR sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PulteGroup surpassed earnings estimates in three of the past four quarters, with an average beat of 13.5%.

NVR’s earnings are expected to grow 23.6% in 2017.

D.R. Horton, a Zacks Rank #2 (Buy) stock, is expected to witness 16.2% earnings growth in fiscal 2017.

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