Lennar Corporation Retraces Some Of Its Recent Gains

Lennar Corporation LEN has pulled back nicely over the last two weeks after running nearly 20 percent higher from the August low to the September peak. Technicians are thinking this pullback may have just run its course and that Thursday's bullish reversal candle was evidence of that being the case.

Does Lennar have the strength in its business to withstand a gentle rise in interest rates?

What The Bulls See

• An innate ability to surpass consensus estimates on a quarterly basis.
• The company's valuations are very reasonable: enterprise value of $12.83 billion trumps the market capitalization of $7.7 billion, price-to-book is just 1.79, price-to-sales is just 1.11, price-to-earnings is just over 13 versus estimated revenue growth of 15.5 percent and EPS growth of 25.7 percent for 2015
• Net profit margins of 7.47 percent.

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What The Bears See

• The company carries more than $5.73 billion in debt versus only $874 million in cash on hand.
• The debt-to-equity ratio comes in at 117.10 percent.

Technical Take

With Thursday's “bullish reversal” candle being posted by Lennar stock, technicians believe the stock may have just completed a short-term “abc” correction to the downside (see bright red labeling on the chart below). That correction was likely the second wave of a five-wave sequence to the upside (wave “(ii)”). They note that the next move should, in theory, be to the upside with potential targets being $45.67 and $46.96 (both Fibonacci generated numbers).

If $38.14 is violated on the downside, however, this rather bullish set up will be negated. The next support below $38.14 comes in at $36.