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Does Lennar (LEN) Make for a Suitable Value Investment?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lennar Corporation (LEN - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Lennar has a trailing twelve months PE ratio of 13.16. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.36.
If we focus on the long-term trend of the stock the current level puts Lennar’s current PE near its lows. Notably, the current PE is well below its median for the term (which stands at 17.48). Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE also compares slightly favorably with the Zacks classified Building Products - Home Builders industry’s trailing twelve months PE ratio, which stands at 13.43. At the very least, this indicates that the stock is somewhat undervalued right now, compared to its peers.
The above chart depicts the PE trend as compared with the industry (we have excluded the outliers experienced by the industry before 2014 and concentrated more on the recent past to make the trend clearer).
We should also point out that Lennar has a forward PE ratio (price relative to this year’s earnings) of just 12.04 – lower than the current level. So it is fair to say that a slightly more value-oriented path may be ahead for Lennar stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Lennar has a P/S ratio of about 1.05. This compare somewhat similarly with the Zacks categorized Building Products - Home Builders industry average, which comes in at 1.01 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
This clearly suggests some level of undervalued trading for LEN—at least compared to historical norms.
Broad Value Outlook
In aggregate, Lennar currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Lennar a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, P/CF ratio for Lennar (another great indicator of value) comes in at 8.62, which is better than the industry average of 9.98. Clearly, LEN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lennar might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘D’. This gives LEN a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen zero estimates go higher in the past thirty days compared to four lower, while the full year estimate has seen six upward revisions and zero downward revisions.
This has had a meaningful impact on the consensus estimate though as the current quarter consensus estimate has declined by 14.1% in the past month, while the full year estimate has inched higher by 2.4%.
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.
Bottom Line
Lennar is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 39% out of more than 250 industries) and a strong Zacks Rank, Lennar looks like a strong value contender.
In fact, over the past one year, the Zacks Building Products - Home Builders industry has outperformed the broader market, as you can see below:
The company is one of the best positioned homebuilders to capitalize on the housing recovery, driven by diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage. So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Does Lennar (LEN) Make for a Suitable Value Investment?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lennar Corporation (LEN - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Lennar has a trailing twelve months PE ratio of 13.16. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.36.
If we focus on the long-term trend of the stock the current level puts Lennar’s current PE near its lows. Notably, the current PE is well below its median for the term (which stands at 17.48). Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE also compares slightly favorably with the Zacks classified Building Products - Home Builders industry’s trailing twelve months PE ratio, which stands at 13.43. At the very least, this indicates that the stock is somewhat undervalued right now, compared to its peers.
The above chart depicts the PE trend as compared with the industry (we have excluded the outliers experienced by the industry before 2014 and concentrated more on the recent past to make the trend clearer).
We should also point out that Lennar has a forward PE ratio (price relative to this year’s earnings) of just 12.04 – lower than the current level. So it is fair to say that a slightly more value-oriented path may be ahead for Lennar stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Lennar has a P/S ratio of about 1.05. This compare somewhat similarly with the Zacks categorized Building Products - Home Builders industry average, which comes in at 1.01 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
This clearly suggests some level of undervalued trading for LEN—at least compared to historical norms.
Broad Value Outlook
In aggregate, Lennar currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Lennar a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, P/CF ratio for Lennar (another great indicator of value) comes in at 8.62, which is better than the industry average of 9.98. Clearly, LEN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lennar might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘D’. This gives LEN a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen zero estimates go higher in the past thirty days compared to four lower, while the full year estimate has seen six upward revisions and zero downward revisions.
This has had a meaningful impact on the consensus estimate though as the current quarter consensus estimate has declined by 14.1% in the past month, while the full year estimate has inched higher by 2.4%.
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.
Bottom Line
Lennar is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 39% out of more than 250 industries) and a strong Zacks Rank, Lennar looks like a strong value contender.
In fact, over the past one year, the Zacks Building Products - Home Builders industry has outperformed the broader market, as you can see below:
The company is one of the best positioned homebuilders to capitalize on the housing recovery, driven by diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage. So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>