Lennar's stock dives below key chart level after longtime bull cuts rating

By Tomi Kilgore

Raymond James is still 'constructive' on the home-builders industry, as its concerns over Lennar are company specific

Shares of Lennar Corp. got chopped down Tuesday after Raymond James backed away from its longtime bullish call on the home builder, citing margin concerns and other company-specific "overhangs."

The selloff sent Lennar's stock (LEN) (LEN.B) below a key chart level that could be considered a warning that a deeper decline may be in the works.

Analyst Buck Horne cut his rating on Lennar to market-perform, after being at outperform for at least the past three years. Horne no longer has a price target for the stock, as he removed his previous target of $180.

Lennar shares shed 2.8% in midday trading to put them on track for their lowest close since Dec. 12, 2023. They have now lost 17.2% since closing at a record high of $171.98 on March 28.

The stock was also headed for its first close below the widely followed 200-day moving average since Nov. 1, 2023. The 200-DMA, which currently extends to $143.78, is viewed by many chart watchers as a dividing line between longer-term uptrends and downtrends.

The last time the stock closed below the 200-DMA after a multimonth stretch above the line, it slipped another 5% in two weeks before starting a new rally. But the time before that, the stock tumbled another 36% over five months before bottoming.

Raymond James' Horne said one reason for his increased cautiousness on Lennar's stock was that when the company reported fiscal second-quarter results in mid-June, it "did themselves no favors" by maintaining its full-year gross-margin outlook while lowering its outlook for the current quarter.

He also believes that the surge in resale inventory in Florida, related primarily to soaring insurance rates and property taxes, warrants increased caution on Lennar's outlook.

And third: "The concept of an upsized land spinoff transaction seeking to create a new off-balance-sheet public company left investors with far more questions than answers, particularly on issues that could create longer-term gross-margin headwinds," Horne wrote in a note to clients.

Horne stressed, however, that his concerns about Lennar were company specific and did not reflect worries about the home-building sector.

"To be clear, we still remain constructive on our broader home-building coverage and steadfast in our conviction that the sector is long overdue for a material valuation re-rating," Horne wrote.

Despite his bullish view on the sector, the iShares U.S. Home Construction ETF ITB slumped 1.2% in midday trading toward a six-month low. The exchange-traded fund was also in danger of its first close below its 200-DMA - currently at $97.41 - since Nov. 1.

While the ETF closely tracked the S&P 500 index SPX for several months to start the year, it has been diverging lower over the past several weeks while the S&P 500 has kept climbing.

In the year to date, the ETF has lost 4.3% while the S&P 500 has rallied 14.9%.

-Tomi Kilgore

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07-02-24 1319ET

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