Option Trade 
Lennar Corporation (NYSE:LEN) Calls 
Thursday, December 17, 2015

**OPTION TRADE: Buy the LEN Jan 2016 52.500 call (LEN160115C00052500) at approximately $0.90. Place a pre-determined sell at $2.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.35.

by Ian Harvey

December 15, 2015

Lennar Corporation (NYSE: LEN), a homebuilder, will report fiscal fourth-quarter earnings December 18. The company will post its quarterly results before the market opens, with analysts calling for earnings of $1.12 per share. LEN has appreciated 10.5% on the year.

Despite being stuck in a sideways pattern for the last few months, Lennar has been one of the better performing stocks in the homebuilder sector. The housing market still remains on solid ground, and Lennar should report very strong Q3 earnings, and it is to be noted that orders rose 10%. Therefore, expect another upbeat report.

Shares of Lennar Co. will open at $50.49 this morning.
Lennar Co. has a 52 week low of $41.25 and a 52 week high of $56.04.
The firm has a market capitalization of $10.62 billion and a P/E ratio of 15.22.
The firm’s 50-day moving average is $50.15 and its 200 day moving average is $50.57.

Lennar Corp will generate positive cash flow in FY 2016 for the first time in five years, which will help compensate for the company’s high debt leverage and enhance its credit profile.

Cash flow generation of $300 million to $400 million in 2016 stems from a change in the company’s strategy, according to the report “Lennar Corp.: Cash-Hungry Land Machine on Pause.”

“Lennar has significantly changed its tactics, with its operating model now reflecting a ‘soft pivot’ strategy,” said Joseph Snider, a Moody’s Vice President and Senior Credit Officer. “Instead of aggressively spending on land as it did prior to the previous crisis, Lennar appears willing to give up some upside to limit risks.”

This strategy of replenishing its land inventory instead of constantly building will help compensate for the nearly $3.1 billion in cash that the company has burned since 2011.

Lennar reported positive sales and earnings surprises in all the three quarters of 2015 reported so far. Strong order trends, pricing gains, steady increases in home deliveries and improved selling, general & administrative leverage boosted sales and profits in 2015. Expect the trend to continue in the fourth quarter as well.

Housing recovery continued at a steady pace in the second and third quarters. In fact, the company believes that the housing market will continue to be driven by "strong and consistent demand" backed by higher job numbers, an improving economy, moderating home price gains, affordable interest/mortgage rates, rising rentals and a limited supply of inventory.

There has been plenty of analyst activity:-

• FBR Capital reiterating their Outperform stance on September 22. FBR Capital increased their price target on LEN from $59 to $60. This corresponds to a 23.43% upside from the last closing price. On the date of report, the stock closed at $49.41.
• JP Morgan reiterated their Overweight stance on July 8, and increased their price target on LEN stock from $53 to $54. This corresponds to a 11.09% upside from the last closing price. On the date of report, the stock closed at $52.35.
• Another research firm was Credit Suisse who reiterated their Neutral stance on June 25. Credit Suisse increased their price target on Lennar Corp from $46 to $51. This translates to a 4.92% upside from the last closing price. On the date of report, the stock closed at $51.36.

Nine investment analysts have rated the stock with a hold rating and eight have issued a buy rating to the stock. Lennar currently has a consensus rating of “Hold” and a consensus target price of $52.95.

Harvey’s Options Volatility Indicator

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the LEN Jan 2016 52.500 call (LEN160115C00052500) at approximately $0.90. Place a pre-determined sell at $2.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.35.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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