Lennar's development and management operations, commercial real estate and finance arm, and its multifamily unit are expected to put the homebuilder's earnings above consensus views and lift the stock higher.
Goldman Sachs upgraded Lennar (LEN) to "conviction buy" from neutral and raised its price target to $48 from $38. Lennar shares rose more than 5% to 41.71 in the stock market on Thursday.
"We believe the market is valuing Lennar almost exclusively for its core homebuilder business, while ascribing little value to its ancillary businesses," Goldman analyst Eli Hackel said in a report.
According to him, $37 of Lennar's roughly $40 stock price at the close of trading Wednesday "can be explained by core homebuilding, with an additional $16 of value from its other businesses.
After analyzing Lennar's FivePoint, Rialto and multifamily businesses, Hackel put his earnings per share estimates for Lennar 2% above the consensus of $2.48 for fiscal 2014 and 9% above the consensus of $3.28 for fiscal 2015.
"While our Homebuilding and Financial Services divisions are the primary drivers of near-term revenues and earnings, our three additional operating divisions are all continuing to mature as excellent longer-term value creation platforms for the company," Lennar CEO Stuart Miller said on the Q4 conference call with analysts in December.
Meanwhile, Goldman downgraded Ryland Group (RYL) to buy from "conviction buy" due to relative growth vs. peers. Goldman put a price target of $53 on Ryland, whose shares still rose more than 3% to 44.67.
Meritage Homes (MTH) was downgraded to neutral from buy at Goldman due to a slower earnings ramp. Analysts expect Meritage's EPS growth to decelerate every quarter this year. The company's price target was lowered to $51 from $54. Despite the downgrade, Meritage shares rose more than 2% to 46.35 on Thursday.
In another move, Raymond James downgraded MDC Holdings (MDC) to underperform from outperform, citing the company's decelerating sales trends and its Q4 earnings miss.
MDC shares fell less than 1% to 29.05.
IBD's Building-Residential/Commercial industry group currently ranks No. 12 of the 197 groups that IBD tracks. The group's five largest companies by market cap are Lennar, PulteGroup, D.R. Horton (DHI), Toll Bros. (TOL) and NVR (NVR).
Three of those — Lennar, Horton and NVR — are up for the year to date. NVR has risen the most, 15%, while Horton is up 6% over that time span and Lennar 5%. The group has gained 9% overall this year through Thursday.
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