Reverse DCF on Lennar and the Numbers Dont Add Up to Current Price

AI Summary

Author runs a reverse DCF on Lennar, argues the market prices in zero growth while fundamentals support a fair value near $180 versus the ~$140 price.

LEN — LONG The author's reverse DCF implies the market is pricing roughly zero growth for Lennar over the next decade, even though housing starts remain below historical averages, millennials are entering peak homebuying years, and Lennar has been gaining market share with decent margins. Using an 8% discount rate, 2% terminal growth and 4-5% annual revenue growth, the author derives a fair value closer to $180 versus the ~$140 price, implying the stock is mispriced. The main stated risk is that the market may know something about housing that the author does not.

Ran the model with what I think are reasonable assumptions. 8% discount rate, 2% terminal growth, modest revenue growth of 4 to 5% annually. Got a fair value closer to $180.

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u/OppositeJury2310 Reddit r/ValueInvesting

Lennar mispriced, reverse DCF implies zero growth

The author's reverse DCF implies the market is pricing roughly zero growth for Lennar over the next decade, even though housing starts remain below historical averages, millennials are entering peak homebuying years, and Lennar has been gaining market share with decent margins. Using an 8% discount rate, 2% terminal growth and 4-5% annual revenue growth, the author derives a fair value closer to $180 versus the ~$140 price, implying the stock is mispriced. The main stated risk is that the market may know something about housing that the author does not.

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