Why This Lennar Analyst Is No Longer Bullish Despite Potential Rate Cut Benefits

Author: Priya Nigam | July 22, 2024 10:28am

Shares of Lennar Corp (NYSE:LEN) declined in premarket trading on Monday, just weeks after the company announced plans to spin off its land assets.

Although the company is poised to benefit from its greater exposure to entry level and first-time buyers as the Federal Reserve cuts interest rates, this is already reflected in the stock valuation, according to Goldman Sachs.

The Lennar Analyst: Susan Maklari downgraded the rating for Lennar from Buy to Neutral, while reducing the price target from $180 to $174.

The Lennar Thesis: Following the recent outperformance, the stock may remain range bound in the near term, Maklari said in the downgrade note.

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Lennar's exposure to entry level is likely to result in margin expansion, the analyst stated. She explained that Lennar is focusing on adding affordable supply to the market, targeting first-time buyers, and shifting to a manufacturing-based strategy, which boosts efficiency.

"As rates move lower, easing financial incentives, we believe profitability could expand, supporting earnings and greater cash generation," Maklari wrote.

Lennar's proposed spinoff of owned land for $6 billion to $8 billion "could drive a re-rating of LEN over time, as the market assesses the company's new profile if and when the spin is completed, as well as decisions around capital allocation, notably shareholder returns," she added.

LEN Price Action: Shares of Lennar had declined by 1.5% to $168.39 at last check on Monday.

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Posted In: LEN