Homebuilder Lennar Corp. ( LEN ) is scheduled to report its second-quarter results before the market opens on June 20. Analysts call for earnings of $0.78 per share, down from $0.95 during the same period last year. The stock is up 22.6% on the year.
LEN was recently trading at $52.64, down $2.20 from its 12-month high and $12.96 above its 12-month low. Technical indicators for LEN are bullish with a strong upward trend. The stock has recent support above $51.75 and recent resistance below $54.85. Of the 12 analysts who cover the stock, six rate it a "strong buy", one rates it a "buy", and five rate it a "hold". The stock receives S&P Capital IQ's 3 STARS "Hold" ranking.
LEN shares have been strong over the last year, as the housing market has remained strong. Across the nation there is a serious housing inventory shortage, which will keep home prices propped up, and should work in the favor of homebuilders as they move to put more properties on the market. The stock has a low valuation, with a P/E of 15.3, so there is plenty of upside if the quarterly report shows strength. Rising interest rates do pose a risk to the overall sector moving forward, but given the low inventory levels, and high home prices, the sector remains attractive, and even with rates starting to inch higher, they remain very low on an historic basis and should not stop the housing recovery at this point. I remain upbeat on the sector, and think LEN should build on its recent gains following its quarterly report.
Stock Only Trade
If you're looking to establish a long stock position in LEN, consider buying the stock under $52.50. Sell if it falls below $47.25 or take profits if it gets to $60.25.
If you want a bullish hedged trade on the stock, consider an August 43/48 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (43.6% annualized*) and the stock would have to fall 8.2% to cause a problem.
If you are looking for a bearish hedged option trade on LEN, consider an August 57.50/60 bear-call credit spread for a 25-cent credit. That's a potential 11.1% return (64.4% annualized*) and the stock would have to climb 9.7% to cause a problem.
Covered Call Trade
To purchase the stock with a lower cost basis, consider an August $52.50 covered call. Buy LEN shares (typically 100 shares, scale as appropriate), while selling the August $52.50 call for a debit of $50.40 per share. The trade has a target assigned return of 4.1%, and a target annualized return of 24.1% (for comparison purposes only).