Why Lennar Corporation (LEN) Spiked on Thursday

NEW YORK (TheStreet) -- Lennar Corporation (LEN) shares spiked during Thursday's session, after the homebuilder received an upgrade from Goldman Sachs

The investment firm upgraded Lennar to "conviction buy" from "neutral" with a price target of $48 from $38. Analysts said they believe the stock has been valued almost exclusively for its core homebuilder business, while little consideration has been paid to its less-profitable but high-potential side income streams. The firm revised its 2014-15 earnings estimate 2% to 9% above consensus. 

On Wednesday, Lennar announced it had priced an underwritten public offering of $400 million senior notes due June 2019 with an interest rate of 4.5%. Net proceeds from the transaction will be used for working capital and general corporate purposes. 

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TheStreet Ratings team rates LENNAR CORP as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate LENNAR CORP (LEN) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 26.3%. Since the same quarter one year prior, revenues rose by 41.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LENNAR CORP has improved earnings per share by 30.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LENNAR CORP reported lower earnings of $2.14 versus $3.10 in the prior year. This year, the market expects an improvement in earnings ($2.46 versus $2.14).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Household Durables industry average. The net income increased by 31.9% when compared to the same quarter one year prior, rising from $124.34 million to $164.08 million.
  • The gross profit margin for LENNAR CORP is currently lower than what is desirable, coming in at 25.37%. Regardless of LEN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, LEN's net profit margin of 8.56% compares favorably to the industry average.
  • LEN has underperformed the S&P 500 Index, declining 6.62% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.