GoodHaven Capital Management Expects Better Growth in Lennar Corporation (LEN)

Investment management company GoodHaven Capital Management released its second-quarter 2022 investor letter. A copy of the same can be downloaded here. At the end of the first half of the year 2022, the fund outperformed the S&P 500 index declining by 3.86% compared to a drop of 8.85% for the S&P 500 Index. The fund has been performing well over the last 2 semi-annual fiscal years. You can check the top 5 holdings of the fund to know its best picks in 2022.

GoodHaven Capital Management discussed stocks like Lennar Corporation (NYSE:LEN) in the second quarter investor letter. Based in Miami, Florida, Lennar Corporation (NYSE:LEN) is a US-based homebuilder. On August 25, 2022, Lennar Corporation (NYSE:LEN) stock closed at $84.90 per share. One-month return of Lennar Corporation (NYSE:LEN) was -0.12% and its shares lost 21.36% of their value over the last 52 weeks. Lennar Corporation (NYSE:LEN)  has a market capitalization of $24.114 billion.

“We have had for some time a material exposure to two companies, Lennar Corporation (NYSE:LEN) and Builders FirstSource, that operate in/around the housing market. Our long-term enthusiasm for their future remains unchanged. On the way up we reminded you that although these had become better businesses (an important part of our thesis), they were still cyclical businesses and that we prepared to own them through a normal housing cycle, versus trying to predict the cycle. In July 2021 we wrote:

“One of these days the red hot housing market will slow—in fact a more normalized pace of demand might be better—as Lennar and its brethren are striving to balance very strong demand with higher raw materials and tight labor markets. While we trimmed our Builders FirstSource position to free up funds for new buys, we remain very constructive on both Builders and Lennar’s long-term prospects. Expect periodic normal demand slowdowns from time to time, though we think slowdowns will be less pronounced than in prior cycles.”

Lennar’s Q2 earnings increased 49% while also repurchasing almost $850 million of shares YTD. The Lennar “B” shares currently trade at a FY2023E price to earnings ratio of about 4x and price to free cash flow of 5x. Industry trends have softened recently after the spike in mortgage rates, however on Lennar’s recent Q2 2022 earnings call, management commented that demand remains reasonably strong and although cancellations and incentives have ticked higher, both remain significantly below historical levels. Lennar’s spin-off of non-core assets is on schedule for year-end. The shift to an asset light land strategy is close to complete with approximately 62% of homesites controlled through land options, which should improve the return on invested capital while also potentially providing downside protection in a weaker environment. Lennar has one of the lowest net leverage ratios in the industry that is also less than half its own level during the 2018 housing slowdown.”

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Lennar Corporation (NYSE:LEN) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held Lennar Corporation (NYSE:LEN) at the end of the first quarter which was 50 in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.

Disclosure: None. This article is originally published at Insider Monkey.