On the Aug. 24, 2026, episode of The Morning Filter podcast, hosts Susan Dziubinski and Morningstar Chief US Market Strategist Dave Sekera discussed why Lennar LEN and RH RH are two stock picks to rent based on current opportunity. Here is an excerpt from the show.
Why We Expect Lennar’s Earnings to Rebound
Susan Dziubinski: Dave, you brought us five stocks to rent today. Your first pick is homebuilder Lennar. Run through some of the key metrics on it.
David Sekera: Sure. Lennar is currently a 4-star-rated stock, trades at a 27% discount, and has a dividend yield of 2.3%. It has a High Uncertainty Rating, and we rate the company as having no economic moat.
Dziubinski: Why is Lennar a stock to rent today? Fits the homebuilder theme, right?
Sekera: Exactly. If you think about the homebuilding sector overall, it’s a sector where we just don’t think you can build an economic moat. It’s very economically sensitive. It’s very sensitive to changes in interest rates. When you think about what’s been going on with homebuilders over the past five years, since the beginning of the pandemic, in 2021 and 2022, revenue for this company was up over 20% per year. A lot of people were trying to move out of the cities, moving into the suburbs. Remember mortgage rates back then? They were ridiculously low. I think mortgages had a three-handle back then. Of course, the stock just raged higher, and it moved all the way up into the beginning of 2024.
And then we saw revenue turn around and decline in 2025. We’re actually looking for a revenue decline even further in 2026. That stock is now down 50% from its highs. When I look at the stock chart, I think it’s in the bottoming-up process. It’s really been a bit of a trading range since March.
Taking a look at earnings here, maybe I’m getting a little bit involved in this one too far in advance of that turnaround that we’re looking for, but we’re forecasting earnings this year of $5.36, which puts it at 16 times earnings. Not necessarily on a P/E basis all that attractive at this point, but we are looking for a rebound then in 2027 once you get back to more of a normalized housing turnover rate. It’d be looking for 5.0% revenue growth. We’d look for the margin to rebound to 6.8% from 6.0%. I’d note that 6.8% is still kind of half of what you saw pre-pandemic, as far as operating margins go.
It’s not like we’re pricing in some big, huge new historically high margin or anything like that. When you put those all together, we’re looking at 7 times earnings for 2027. At this point, that stock’s trading at only 12 times our 2027 earnings estimate.
Why RH Looks Undervalued on Future Earnings
Dziubinski: Your next stock to rent is RH, which some investors may remember was called Restoration Hardware. Give us the highlights.
Sekera: The stock’s currently a 4-star-rated stock, trades at a 43% discount, which, at that big of a discount, because it’s a Very High Uncertainty, only puts it in that 4-star range, but a very large margin of safety from our long-term fair value estimate. Again, another company we rate with no economic moat, based on it being in the retail sector and not having any long-term durable competitive advantages.
Dziubinski: Dave, why do you think RH is a stock to rent today rather than buy for the long term?
Sekera: A lot of it has to do with just what their basic business is. For people who aren’t familiar with RH, I consider it to be a luxury furniture—not just a furniture—retailer. They’re really trying to sell a lifestyle. But we think when you look at the discretionary products that they sell, their sales are going to be very cyclical, really tied to the housing market overall. The business doesn’t have the ability to generate those economic moats that we’re looking for.
I’d also note that they are trying to become what they consider to be a lifestyle brand. They have 26 restaurant locations. They’re trying to use that for customer acquisition, and it’s a brand-building tool, trying to really put that image together as being a luxury lifestyle. I’ve looked at their menus here in the Chicago area. I think the prices are a little too high for my taste. My wife, my daughter, and my in-laws, I think, have gone there once, and from their perspective, it wasn’t necessarily worth going back to.
Now, fundamentally, what’s going on here? You had huge sales growth in 2021 during the beginning of the pandemic. It was a combination of a couple of things. One, a lot of housing turnover. Again, a lot of people looking to redecorate their houses or redecorate the houses that they were buying; a lot of demand for new furniture. Plus, you had all of the shut-ins early during the pandemic. That drove just a huge wave of buying online from being in person, and that stock just soared. It went from a pandemic low of $100 a share to over $700. Like anything else, and especially with these types of stocks that you want to rent, this is one where it just overextrapolated way too much growth for way too long. The stock has really been in a long-term downward trend ever since.
Now, as far as our model, taking a look at what we’re expecting, we’re looking for 5% growth this year. We’re looking for an average 8% to 9% growth over the longer term. We expect that the stability in the business now that they’ve gotten past all of that pull-forward from the early pandemic years, looking for margin expansion. The 2026 operating margin we’re forecasting is 9.2%. That’s below the 11% to 13% historical range that they’ve had. We’re looking for that to slowly expand over the next couple of years. We’re looking for it to get to 10.3% in 2027. We think earnings will bottom out this year at $5.82 per share.
Now, that makes the stock look expensive based on 2026 earnings. That makes it 26 times this year’s earnings. But once people start focusing on how much we think this company can make in 2027, we’re looking at earnings of $11 per share next year. Then, the stock’s only trading at under 14 times 2027 earnings. Once we start moving later this year and into the beginning of next year, when people start pricing stocks on a two-year forward, the 2027 earnings estimate, I think this one really starts to look undervalued.
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