Lennar turnaround delayed on land costs, margin pressure, Raymond James says

Investing.com -- Raymond James downgraded Lennar Corp to Underperform from Market Perform, saying the U.S. homebuilder faces a longer path to restoring margins and returns as higher-cost land, elevated incentives and overheads weigh on profitability.

“At current valuations, we believe the market is underestimating the timeline it may take Lennar to restore its margins and returns to historical averages,” the brokerage said which now expects company to see lower earnings than it previously expected.

Lennar shares trade at 1.7 times tangible book value and about 15 times 2026 earnings, which Raymond James said represents a “25% premium to large-cap peers despite a below average 8.4% projected ROIC.”

The broker pointed to three main headwinds: higher-cost land lots flowing back from land-banking partner Millrose Properties, selling incentives at a 15-year high of 14.3% of gross home price, and elevated spending on technology and overhead that keeps SG&A ratios above peers.

“During the initial ramp up phase of fully cycling into Millrose-banked lots — we estimate Lennar’s effective lot costs could rise by 20%+ relative to previously Lennar-owned homesites,” the note said.

Lennar last week reported fiscal third-quarter core EPS of $2, missing consensus, as weaker deliveries drove a $280 million shortfall in homebuilding revenue.

GAAP EPS was $2.29, down 46% year on year. Margins slipped another 30 basis points, prompting the company to cut expected 2025 deliveries by about 5% at the midpoint.

Incentives rose again in the quarter to limit inventory build.

Mortgage rates falling since July have helped traffic but not yet translated into stronger sales.

Construction costs declined 3% year on year and cycle times improved to a record low, but Raymond James said these positives are unlikely to offset the broader margin pressure in the near term.

Related articles

Lennar turnaround delayed on land costs, margin pressure, Raymond James says

5 High-Yield Dividend Stocks for Reliable Income Amid September Volatility

Silver: Global Markets Show Signs of a Gold-Like Bullish Run With $44 in Sight

View Comments