CCS/Lennar -Like Good God CCS is making me hot and bothered, or if you want a short term play Lennar
This is a freaking, huge, opportunity. It is quite honestly, ridiculous how undervalued this is after the dump it just had. I even went to the SEC filings to see if it had any material statements that would cause it to tank so hard, but there was only an 8-K filed 2 days ago as an update for Q2 earnings on July 28 that was extremely positive (this is when the stock started to tank by the way!). This is the 9th Largest Homebuilder by the way!
· .15 Quarterly dividend, for a 1 percent annual yield!
· Continued expansion into the Dallas/Fort Worth Market, and the Louisville, KY market which are growing areas!
· That their revolving line of credit increased 140M to 800M
· That sustained demand supported by supply-side constraints is enabling continued price increase, and that 2Q absorptions are increasing 25% YoY to roughly 5 sales per community per month!
· Entry level home buyers represent 80 percent of deliveries, which is huge because this is most of their business (Though they sell first and second move-up buyer homes, and lifestyle homes). This is demographic as Millenials and the first of the Gen Z generation age up into their prime home buying years. Over the next 5-year period, millennials will continue to age into their prime home buying years, and that dovetails with the 4M Home undersupply of homes, combined with the 1.2M per year that will need to be built per year just to keep up with existing YoY demand. Homebuying starts in March reached a bit over 1.7M homes (seasonally adjusted), which means only a 500K cut into that huge undersupply of homes.
· Mortgage rates are still under 3%.
· Timber prices have drastically declined (though are still high) since May 7th from 1670 to 1167 which is a 43.1% decline. (You can see timber stocks trending downward as futures decreased in a sort of simultaneous pattern).
· They operate in 17 states, and most of them are in high growth states.
· There is a startling low available of resale homes, and the inventory supply continues to decrease into 2021 (I know this because I had been the one researching UWMC, but it’s backed up in the 8-K), The US average is 2 months’ worth of supply, but in the majority of the places where they operate it’s below 1 and in a lot of cases, below .7.
· They purchase lots to not get caught out, and scale easily. Their ROE in 2019 was 11.8% in 2019 (highlighting how it is already a strong business), 2020 was 17.6%, and LTM Q1 2021 was 22.9%.
· LTM income was 367.2M in 2021, and 206M in 2020.
· They have 45% in new contracts, and the total lot supply increased 61% to nearly 58,000 lots. Their gross margin expanded 340BPS to 21.1% in 2021, and they expect continued YoY margin expansion.
· They have a backlog worth 1.58B HOMES ALONE (4097 Homes!)
· They’ve had strong acquisitions, and their financial services business lends to strong consumers with a 710 or 744 average FICO depending on the business.
· Their homebuilding debt to net capital is 19.9%.
· Their Book value per share has gone up 63% since 2017 to Q1 2021, and the book value per share is now 40.74!!! That’s a price to book of 1.64! Their tangible price to book is 39.63 or a tangible price to book of 1.68. (I know the tangible price to book is higher, even though it’s lower than P/B, but the SP is moving as I write this, sorry!).
· Finally, the only debt they have due is in 2025, and as of now their not using their line of credit!
EPS was 3$ on a diluted basis for Q1 2021 alone, on net income of 101M. 2020, their EPS was 6.13 Diluted, but they have gotten an EPS of 3 in the first quarter of 2021 alone! They are set to demolish 2020, and even a very conservative EPS of 8 gives them an 8.34 EPS. If timber futures continue to decrease, and the margin continues to expand organically, then the company is poised to blow an EPS FY of 8 by a not insignificant margin. I would expect EPS of 10-12, which would give a forward p/e ratio of 6.67 to 5.56.
Alternatively, if you want a short-term play, Lennar is attractively priced in the short term, with a price to earnings ratio of 9.6 and it is down 2.35% today (it was down more) at 91.69. The 91-91.5 options for June 18th are juicy as you only need Lennar to go up 2.5% roughly to be in the money and the IV is low at 44-45 percent. This is a pure earnings play, as earnings are on the 16th. You can either sell the IV runup or see if there is a spike at earnings. The stock is down 4.6% in the last week, and 12.93% in the last month, nearly wiping out its 3 Month Gain Chart. That means expectations are quite low, even though CCS made a update saying things were going to be even better in Q2 than it was in Q1. Be aware of Theta Burn as it’s 14%. This is a risky play obviously, a WSB. With that said, I’m already up roughly 10% intraday.
· 5 July 18 91 dollar Contracts at 2.45 for Lennar!
· 4 9/17 65 Call Contracts at 8.80 for CCS (The Premium is high, but I am accounting for the fact I want to see Earnings lmao), if you want to try to find a bounce in the short term feel free to buy closer contracts and see if it bounces up due to being oversold.
· 4 Shares (Might buy more) of CCS
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June 10, 2021 at 10:37AM