Is Lennar Worth $32 Per Share? (LEN)

Homebuilders have been on the mend and the fresh strength in the economic data on jobs and services is only going to help that. Still, when is a great move just too much.  Not yet in Lennar Corporation (NYSE: LEN) if Gabelli & Co. is right in its research call. Despite shares hitting a new 52-week high today, Gabelli has a “private market value” per share value of $32.00.  The firm is initiating coverage with a “Buy” rating.

While this should not be construed as a true price target, the implication is that analysts elsewhere have a lot of catching up to do.  Lennar shares are up over 6% today and the $23.20 price is above the prior 52-week range of $12.14 to $23.11.  It is also dangerously close to the consensus price target of about $23.80 from Thomson Reuters.

As noted… “Lennar should continue to benefit from the recovery in housing. We estimate that Lennar should be able to double closings over the next few years, from 11,000 homes in 2011 to 25,000 in 2015, compared with peak closings of 50,000 in 2005.”

Here are some other highlights:

• gross margins of over 20%
• lowered building cost from $60 per square foot before the crisis to $40 per square foot today
• strong balance sheet, and ended 2011 with approximately $1.0 billion in homebuilding cash and $3.4 billion in homebuilding debt
• next debt maturity is in 2013 of about $270 million)
• majority of the company’s debt ($2.3 billion) is due after 2016
• its new distressed investment division called Rialto should contribute meaningful operating earnings in the years ahead

The conclusion… “Both Lennar Class A and Class B shares are trading at an attractive multiple of our estimate of 2015 earnings of $2.80. By that time, we expect the company to close on 25,000 homes, over double today’s closing volume, and increase margins from 8.3% to 11.4% as the company levers corporate overhead. We calculate a PMV of $32 in 2015 (1.5x book value, 11.5x EPS).”