Tags: Lennar | homebuilders | rebound | LEN

Lennar Among Homebuilders Ready for Possible Rebound

By    |   Wednesday, 18 July 2012 05:27 PM

Lennar (LEN) is among the handful of homebuilders in the United States capable of capturing a breadth of the housing market across multiple states, should a housing turnaround finally begin. While the number of bank foreclosures in the pipeline remains a concern, the government reported this week that housing starts rose nearly 7 percent in the past month, to reach its highest rate since the credit crisis began.

Lennar is one of the largest homebuilders in the United States, a provider of financial services and, through its Rialto Investments segment, an investor in distressed real estate assets. 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 directly and through unconsolidated entities in which it has investments.

A national homebuilder, Lennar operates in various states and delivered 10,845 new homes in 2011. Lennar primarily sells single-family attached and detached homes in communities targeted to first-time, move-up and active adult homebuyers. The average sales price of a Lennar home was $244,000 in fiscal 2011, compared to $243,000 in both fiscal 2010 and 2009.

“During 2011, we continued to see a housing market that was trying to stabilize. We have seen demand for home purchases slowly return to the marketplace, driven by a combination of low home prices and low interest rates, as evidenced by our increase in new orders of 15 percent year over year during the second half of 2011,” Lennar management said in a recent filing.

“Our strong balance sheet and liquidity will allow us to capitalize on future opportunities as they present themselves. We also ended 2011 with $1 billion in Lennar Homebuilding cash and cash equivalents.”

Lennar has a market cap of $4.92 billion in a sector, household durables, where the average company size is $1.72 billion. Its trailing 12-month P/E ratio is 12.93 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.15, compared to 3.03 for the sector.

Its projected earnings per share growth for the coming year is negative 50.89 percent, compared to a sector average of 33.45 percent.

Sustained profitability

Wall Street is positive on LEN, with buy or outperform calls from RBC Capital Markets, Credit Suisse, Ned Davis Research, and Friedman, Billings, Ramsey & Co.

“We believe Lennar can sustain profitability with reduced construction and operating costs on new scaled-down homes coming to market, and we favor its land acquisition strategy,” said the analysts at Standard & Poor’s Equity Research, who rate the stock a hold.

“In our opinion, the company can be opportunistic in new land purchases or option land contracts with abundant land coming to market from banks that took possession of distressed or bankrupt private homebuilders.”

Lennar next reports on Sept. 26.

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Wednesday, 18 July 2012 05:27 PM
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