What we love about Lennar
U.S. housing market needs more homes - Lennar is positioned well to fill that gap
Lennar is the largest homebuilding company in the US, with new homes available in 22 states
Reasonably priced stock with upside in the market of sky-high valuations
Strong Business in the long term with climate change
Stock market downturn
Housing market is not as undersupplied as expected =
If you have looked at real estate in the last six months, then you know the housing market is red hot. However, for investors that don’t want to invest in physical properties, capitalizing on the post covid housing boom may appear to be difficult. Fortunately, at People’s Capital, we have Identified a stock to resolve this issue - Lennar (NYSE: Lennar).
Lennar is one of the largest home builders in the United States. While the price of houses is currently high - which is advantageous to Lenner when selling new homes - research suggests that the U.S. requires four million more homes to reach market equilibrium. Thus, home prices and the demand for new homes is likely to remain high for the foreseeable future, which leaves Lennar in a strong position.
In addition to its strong position in the housing market, Lennar is also a fundamentally sound business. Lennar has seen consistent growth in revenue and earnings, as well as positive cash flow from operations. Furthermore, for the past three years, Lennar has consistently paid down its debt, despite the Covid-19 pandemic in 2020. In short, Lennar’s fundamentals are strong, and investors should feel confident about the foundation of the business.
In a market of eye-popping valuations, Lennar is a relatively reasonably priced stock. While a typical housing or home building company has a P/E ratio of ~16, Lennar has a P/E of 9, which makes it an attractive investment when compared to its peers.
Finally, in the context of climate change, Lennar is an attractive long-term investment. If limitations are placed upon consumer energy usage, newer and more energy-efficient homes will be in higher demand. Furthermore, the need to replace homes destroyed by stronger hurricanes, fires, and other natural disasters will keep the demand for new homes high for years to come.
There are a few risks to evaluate when considering an investment in Lennar. A stock market downturn would likely reduce the price of the security in the short term. Furthermore, if the deficit of homes in the United States is not as large as analysts think, that could also impact Lennar’s long-term performance.
After weighing the benefits and risks of an investment in Lennar, we at People’s Capital believe it will be profitable on a three to five-year horizon.
The People’s Capital Team