Barclays' Upgrades Lennar Thanks To FivePoint Undervaluation

In a report published Friday, analysts at Barclays upgraded

from Equal-Weight to Overweight. The price target was raised from $45 to $53. The analysts believe that the company's subsidiary, FivePoint, is currently undervalued by the market. Following the recent pullback in Lennar's stock, the analysts believe that homebuilding stocks, in general, are more fairly valued. "Meanwhile, we expect LEN's FivePoint projects to steadily command a greater valuation premium in coming quarters, driving the investment opportunity in the stock," the analysts stated. Following a two-day tour of Lennar's FivePoint subsidiary and meetings with the management, Barclays believes that the four large projects at this subsidiary are "among the industry's most impressive land assets, and highlight the company's expertise in managing public-private partnerships, and navigating an extremely difficult and complicated path to entitling parcels." These projects are expected to be able to offer Lennar a steady pipeline and long-term means of equity earnings. At present, the analysts believe the projects have matured enough for investors to be able to estimate FivePoint's value to the company in the near future. Barclays believes that the subsidiary is already worth more than estimated by the Street. "Arguably, like FivePoint, Lennar's Rialto subsidiary should probably also be valued separately from the rest of the company, since it represents a materially different stream of revenues and income from traditional homebuilding," the analysts added, while also saying that the subsidiary was evolving impressively.