Lennar: Building Returns in a Hot Sector

08/16/2016 7:00 am EST


Bret Jensen

Editor, Biotech Gems

To gain exposure to the hot housing sector, we are looking at one well-run and well-positioned home builder, states Bret Jensen, editor of Blue Chip Gems.

With a $10 billion market capitalization, Miami-based Lennar (LEN) is one of the largest homebuilders in the country, primarily targeting first-time, move-up, and active adult homebuyers.

Lennar also develops multi-family rental properties and also offers a variety of financial services to investors and buyers.

The company has been around for over sixty years and has managed through myriad housing cycles.

Even though housing starts have risen significantly since the end of the financial crisis, they are far below the average of the past 30-40 years even as the population of the country continues to grow.

In addition, the industry should benefit from whoever wins the upcoming election. It truly is an industry that is politically agnostic.

One of the main reasons I like Lennar is for its balance sheet as well as its financial flexibility and discipline.

While many builders were selling off lot inventories in the financial crisis and its
immediate aftermath at fire sale prices, Lennar’s financial position allowed them to grab up a lot of these assets at bargain prices.

This is a key reason that the company has the best overall margins among the large and mid-cap builders in the sector because it can build on the land assets acquired at lower prices.

Analyst commentary on Lennar at the present time is positive. Over the past month, RBC Capital, UBS, and Argus Capital have reiterated buy ratings with price targets in a fairly tight range of $59 to $64 a share.

This looks quite reasonable over the next 12-18 months which would mean a return of approximately 25% above current levels.

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Editor’s Note: Bret Jensen will be a featured speaker at the upcoming San Francisco MoneyShow, August 23-25. He will discuss investing in biotechnology, including strategies to find buyout targets in the sector. To register, click here.

By Bret Jensen, Editor of Blue Chip Gems

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