Goldman Sachs Analyst Downgrades Lennar and KB Home, Citing Tougher Operating Environment
Goldman Sachs analyst Susan Maklari has downgraded her rating on Lennar Corp (LEN) and KB Home (KBH) to Neutral, citing a challenging operating environment for homebuilders. She also lowered her price targets for both companies.
Rising mortgage rates: The 30-year fixed mortgage rate has increased significantly since mid-December, reaching the high-6% range. This increase, coupled with poor consumer sentiment and macroeconomic uncertainties, is impacting demand.
Inventory levels are rising in some regions, and harsh winter weather has slowed activity.
Despite a recent decline in mortgage rates, Maklari remains cautious on demand due to economic and housing conditions. Channel checks and builder feedback indicate uncertainty in markets like Florida and Texas, although areas like Vegas are showing strength.
Challenges and Outlook
Maklari expects a cautious outlook from both Lennar and KB Home, with a focus on factors within their control. In addition to revenue challenges, margin pressures are increasing due to rising costs, particularly for framing lumber.
Despite the challenges, Maklari expects modest improvement in results through the year, driven by seasonal volume increases and a focus on spending and cash generation.
For Lennar, the analyst now anticipates organic closings at the lower end of the 17,000-17,500 range. The recent acquisition of Rausch Coleman Homes will add around 4,000 closings in 2025.
For KB Home, Maklari has revised her first-quarter order estimate down by 8% year-over-year. Looking ahead, she projects a 1% increase in orders for the year and homebuilding sales of $7.0 billion.
Key areas of focus for F1Q earnings include demand trends, cost management, buyer preferences, community count updates, and capital allocation priorities.
Key Takeaways
Goldman Sachs analyst Susan Maklari has downgraded Lennar and KB Home to Neutral, citing a tougher operating environment.
Rising mortgage rates, economic uncertainty, and rising costs are impacting demand and profitability.
The analyst expects a cautious outlook from both companies, with a focus on internal factors.
Despite the challenges, Maklari expects modest improvement in results through the year, driven by seasonal volume increases and cost management.