Lennar Corp-B

Though Lennar Corp appears cheap due to heavy downward pressure in the past year, we have capped its rating at 3 stars to factor in the possibility that it represents a value trap. The stock currently trades at a 32% discount to our quantitative fair value estimate of $107.60 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The firm's valuation metrics increase our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. Reflecting the firm's valuation is its book value yield of 109.0%, which sits in the top 30% globally. The market price is low relative to the book (accounting) value of the company's equity, which contributes to our view that shares are undervalued.

The firm's profitability is an additional encouraging factor. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's sales yield of 159.7%, a core component of profitability, sits in the top 30% compared with peers globally. This company has a robust ability to generate sales without much capital investment, freeing up more capital to be returned to shareholders in the long run. This characteristic further promotes our favorable price/fair value ratio.

This company lacks a competitive advantage, receiving a quantitative economic moat rating of none. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.