BTIG Downgrades Lennar (LEN) to Neutral

BTIG analyst Carl Reichardt Jr. downgraded Lennar (NYSE: LEN) from Buy to Neutral.

The analyst comments "We are downgrading LEN to Neutral from Buy and removing our $216 price target. LEN missed 4Q EPS and guided 1Q25 EPS 31% below prior FactSet consensus (see our note here). Our rationale: 1) Our positive thesis had been that investors were getting LEN the builder at a modest discount to fair value and the Millrose spin for free. Based on our new ests., a) Millrose is likely to be worth slightly less to shareholders than we expected and b) LEN the standalone builder appears fairly-valued on our new, lower EPS ests. 2) LEN's "machine" blew a fuse this qtr, missing across its guidance set. LEN relies on elasticity (which had been robust) to find market-clearing prices; this qtr, mgmt noted that price/incentive changes elicited little consumer response and assumes 18% GM will be needed to hit order targets on homes sold & closed (50% of volume guide) in 1Q. This dynamic adds a sheen of uncertainty on volumes & margins for LEN for FY25, and we lower our EPS est to $12.35 from $16.35. 3) We do not believe the "asset-light" nature of the company post-spin results in meaningful multiple expansion in the short-term. Investors seem likely to question rather than reward a volume-first business model. Peers utilizing lower-risk finished lot option contracts to control land off balance sheet (as opposed to land banking) are slowing growth and refocusing on margin to help drive ROE. While we are a bit sheepish downgrading a stock at a year-low price, we believe other builders offer a more balanced mix of price points and sales/margin visibility at similar or lower valuations with more upside. While we still like LEN's scale, cash generative ability and balance sheet, and have long-term confidence LEN will be a higher-return operation, near-term problems and uncertainty cloud these positives."

For an analyst ratings summary and ratings history on Lennar click here. For more ratings news on Lennar click here.

Shares of Lennar closed at $138.40 yesterday.

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