Analyst: Beware LEN Stock Before Earnings

The analyst cited the stock's "rich" valuation

by Lillian Currens

Published on Jun 18, 2019 at 11:14 AM
Updated on Jun 18, 2019 at 11:17 AM

Real estate concern Lennar Corporation (NYSE:LEN) is seeing some negative analyst attention today. Specifically, Raymond James just downgraded the stock to "market perform" from "outperform," citing concerns over the upcoming earnings report on June 25 next week, as well as the stock's "rich" valuation. The analyst maintained its $55 price target however, which is just atop the shares' current perch at $52.95. 

The downgrade follows the equity's recent rally, with LEN shares making a nearly 9% rebound off their two-month lows on May 31, with recent support from the rising 50-day moving average helping to push the shares higher. But while the stock has enjoyed a near 36% surge this year, resistance from the $54 region has prevented LEN from overtaking its mid-May nine-month high of $54.50. 

LEN Chart June 18

If that's not enough, Lennar just made the list of 25 worst stocks to own the week of Fed meetings, according to Schaeffer's Senior Quantitative Analyst Rocky White. Taking a look at data since 2015 and considering 25 returns, LEN has averaged a one-week loss of 1.3% and was positive only 31% of the time. Plus, LEN is the only name in the Household Goods & Home Construction sector that showed up on the list. 

Circling back to analysts' sentiment over the homebuilder, nearly all 12 members of the brokerage bunch following the stock consider it a "strong buy," with only one "hold" on the books. The consensus 12-month target price, meanwhile, is $58.75. 

Options traders are generally bullish on the security, too, with 3.38 LEN calls being purchased for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past 10 days. This ratio sits in the 80th percentile of its annual range, which hints at a much healthier appetite for these bullish positions of late. 

Despite the downgrade, this optimistic options trading action is being carried into today's trading, with roughly 588 call contracts across the tape so far, five times the number of puts and nearly two times what's typically seen at this point. The June and July 55 calls are seeing the most activity thus far, while new positions are opening at the July 60 call.

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