LEN – Market expectations are for Uniform ROA to compress and management may have concerns about the market conditions, home sales, and M&A activity

May 11, 2022

  • Lennar Corporation (LEN) currently trades well below historical and corporate averages relative to Uniform earnings, with a 5.6x Uniform P/E (Fwd. V/E’).
  • At these levels, markets are pricing in expectations for Uniform ROA to compress substantially to 4%, accompanied by 7% Uniform asset growth.

  • Meanwhile, analysts expect Uniform ROA to contract to 20% in 2023, accompanied by 20% Uniform asset growth.

  • If sustained going forward, these levels would imply a stock price closer to $659, representing significant potential equity upside for the firm.

  • That said, as a homebuilder exposed to a favorable housing market cycle, it is unlikely that peak cycle performance would carry on indefinitely.

  • Moreover, the firm’s most recent earnings call suggests management may have concerns about market conditions, home sales, and M&A activity.

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