Lennar could resume its impressive rally, if history is any indicator
While homebuilder Lennar Corporation (NYSE:LEN) is taking a step back today, last seen down 5.1% at $74.40, the equity's rally off its March lows has been nothing short of impressive. Lennar stock quickly eclipsed its former February peak in late-July, and has gone on to notch record high after record high since then. The security's most recent peak came on Aug. 21, when LEN reached $79.64. And though the stock has been consolidating just below, solid support at the 30-day, paired with a historically bullish signal that just sounded, paints a promising technical picture for the home stock.
In fact, LEN's recent peak comes amid historically low implied volatility (IV) -- a historically bullish combination for the equity. Drilling down, a study from Schaeffer's Senior Quantitative Analyst Rocky White shows three other times in the past five years when the stock was trading within 2% of a 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower -- as is the case with LEN's current SVI of 45.1%, which sits just in the 18th percentile of its 12-month range. The study also shows that one month after this signal, the security was higher, averaging a one-month return of 10.8%. From its current perch, a move of similar magnitude would put LEN just above $82, at yet another record.
Despite its 44.4% year-over-year lead, analysts have yet to come around to Lennar stock, which could lead to a round of upgrades. Nine of the analysts in coverage call LEN a "buy" or better, compared to seven "hold" ratings. Plus, the 12-month consensus price target of $77.07 is just a 2.6% premium to current levels.
For those wanting to get in on the equity's next bounce, options may be the way to go. In addition to options being reasonably priced at the moment, per LEN's relatively low SVI reading, the stock sports a Schaeffer's Volatility Scorecard (SVS) of 93 out 100. This indicates that Lennar stock has tended to exceed option traders' volatility expectations during the past year -- a boon for option buyers.