Please ensure Javascript is enabled for purposes of website accessibility

Why Lennar Rallied This Morning

By Brian D. Pacampara, CFA – Feb 6, 2014 at 11:31AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Lennar (LEN -0.09%) popped 3% this morning after Goldman Sachs upgraded the homebuilder from neutral to conviction buy.

So what: Along with the two-notch upgrade, analyst Eli Hackel boosted his price target to $48 (from $38), representing about 21% worth of upside to yesterday's close. While value investors might be turned off by the stock's strength in recent months, Hackel thinks there's plenty of room to run given his view that Lennar's subsidiaries are underappreciated by Mr. Market.

Now what: According to Goldman, Lennar's risk and reward trade-off is particularly attractive at this point. "We believe the market is valuing LEN almost exclusively for its core homebuilder business, while ascribing little value to its ancillary businesses," Hackel wrote. "We did a deep dive on FivePoint communities, Rialto and Multifamily, including modeling out the profitability and value creation of each business, driving our estimates higher and putting us 2%/9% above Street EPS in 2014/2015." Of course, with Lennar shares up nearly 20% over the past three months and trading at a P/E premium to the industry, I'd wait for a wider margin of safety before buying into Goldman's conviction call. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lennar Stock Quote
Lennar
LEN
$86.38 (-0.09%) $0.08
Goldman Sachs Stock Quote
Goldman Sachs
GS
$388.86 (0.68%) $2.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.