DCF Studio

    LEN · NYQ · Consumer Cyclical

    Lennar Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 155.23

    Market price

    USD 76.43

    Implied upside

    +103.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.37% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.3%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 155.23+103.1%
    Exit multiple
    USD 142.96+87.1%
    Market price
    USD 76.43

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 34.4bnUSD 34.5bnUSD 34.7bnUSD 34.9bnUSD 35.1bn+0.5%
    EBITUSD 5.0bnUSD 5.0bnUSD 5.0bnUSD 5.0bnUSD 5.1bn+0.5%
    NOPATUSD 3.9bnUSD 3.9bnUSD 4.0bnUSD 4.0bnUSD 4.0bn+0.5%
    Add depreciation & amortisationUSD 111.6mUSD 112.2mUSD 112.7mUSD 113.3mUSD 113.9m+0.5%
    Less capital expenditureUSD -343.6mUSD -345.4mUSD -347.1mUSD -348.9mUSD -350.6m+0.5%
    Less increase in working capitalUSD 173.7mUSD 174.6mUSD 175.5mUSD 176.4mUSD 177.3m-0.5%
    Free cashflow to firmUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 3.9bn+0.5%
    Discount factor0.95170.86200.78070.70710.6405-
    Present valueUSD 3.7bnUSD 3.3bnUSD 3.0bnUSD 2.8bnUSD 2.5bn-9.0%
    Present Value Of The ForecastUSD 15.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.267Reported 1.398, pulled toward 1.0 (Blume)
    Cost of equity11.96%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 18.4bn75.8% of capital
    Total debtUSD 5.9bn24.2% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.41%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 155.23

    63% of EV

    Forecast FCFF, final year
    USD 3.9bn
    Capex at depreciation, working capital in reinvestment
    USD 4.0bn
    Less reinvestment at g/ROIC (19.6% of NOPAT)
    USD -782.6m
    Capitalised
    USD 3.2bn
    ROIC (reported)
    12.8%
    Terminal value, undiscounted
    USD 41.7bn
    Terminal value, discounted
    USD 26.7bn
    Enterprise value
    USD 42.1bn
    Less net debt
    USD 2.1bn
    Equity value
    USD 40.0bn

    Exit at 7.1x EBITDA

    Value per shareUSD 142.96

    61% of EV

    Terminal value, undiscounted
    USD 36.8bn
    Terminal value, discounted
    USD 23.6bn
    Enterprise value
    USD 38.9bn
    Less net debt
    USD 2.1bn
    Equity value
    USD 36.8bn

    Spread between methods: 8%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.41%194.16199.10204.82211.51219.48
    9.41%170.18173.14176.47180.25184.61
    10.41%151.55153.30155.23157.36159.74
    11.41%136.66137.65138.70139.84141.07
    12.41%124.47124.96125.47125.99126.53

    Outlined: this model. Green text: above today's price of 76.43. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year0.5%-7.0%-7.5pp
    EBIT margin14.4%7.5%-6.9pp
    Discount rate10.4%20.0%+9.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.