Home builder Lennar (LEN) wowed investors this morning with much higher than expected revenue and orders in the fiscal second quarter ended in May.
Sales dropped 21% to $891 million, but that was well above the $598 million expected and up 47% from the first quarter. Orders rose 63%, higher than expected. Lennar shares closed up $1.29, or 16.5%, at $9.11. Other home builders rose as well, including Pulte Homes (PHM), up 50 cents, or 5.9%, at $8.97.
Is there still value in Lennar? Probably. Pali Capital Research analyst Stephen East told me by phone this afternoon that the report met or exceeded pretty much all his expectations for the company’s performance. He has a $16.25 price target on the stock, and while it’s not clear the company will reach that high soon, it’s certainly cheap at $9 a share, he argues.
Lennar trades at a little under half East’s estimate of $19 in book value, including cash, deferred tax assets, and its portfolio. “By whatever metric you use, do we have considerable upside from today’s price? Absolutey,” East told me. “Will the book value come down to anywhere close to today’s price? Not likely,” he concludes.
In other words, even though prices continue to fall for all builders, even though the portfolio continues to lose value, and even though a pickup in demand will be “long and slow,” book value is not going to deteriorate anywhere near fast enough to make today’s stock price fairly valued, insists East.
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