Barbarian At The Gate: Lennar (LEN)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Lennar ( LEN) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Lennar as such a stock due to the following factors:

  • LEN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $113.4 million.
  • LEN has traded 3.8 million shares today.
  • LEN traded in a range 212.2% of the normal price range with a price range of $1.38.
  • LEN traded above its daily resistance level (quality: 75 days, meaning that the stock is crossing a resistance level set by the last 75 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on LEN:

Lennar Corporation, together with its subsidiaries, is engaged in homebuilding activities in the United States. The stock currently has a dividend yield of 0.4%. LEN has a PE ratio of 17.7. Currently there are 6 analysts that rate Lennar a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Lennar has been 2.8 million shares per day over the past 30 days. Lennar has a market cap of $6.8 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.40 and a short float of 15.3% with 9.38 days to cover. Shares are down 1.1% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lennar as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 5.8%. Since the same quarter one year prior, revenues rose by 26.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • LENNAR CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over 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 ($2.58 versus $2.14).
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Household Durables industry average. The net income increased by 0.2% when compared to the same quarter one year prior, going from $137.44 million to $137.72 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Household Durables industry and the overall market, LENNAR CORP's return on equity is below that of both the industry average and the S&P 500.

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