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Lennar Stock Is Downgraded Because There’s Only So Much the Fed Can Do to Help Home Builders


Sept. 18, 2019

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There aren’t a lot of factors on the horizon that could juice the U.S. housing market , so Keybanc Capital Markets’ Kenneth Zener has cut Lennar to a Sector Weight rating from Overweight.
Lennar stock (ticker: LEN) was up 1.2% in Wednesday trading.
The back story. So far this year, shares of the home builder have risen 37%, while the S&P 500 is up just under 20%.
Home-building stocks have rallied as the Federal Reserve has moved from raising interest rates to lowering them. Mortgage rates have dropped, making housing more affordable and encouraging people to buy.
What’s new. But now, after this year’s run, Zener thinks that the stock is fairly valued.The earnings growth that the company has enjoyed recently due to the Fed’s easing is likely to weaken, he argued, and there isn’t much else he can see that will give the stock a lift in the short term.
Looking ahead. Zener says further Fed rate cuts, a continued drop in the company’s materials costs and an increase over the current rate of new orders could lift the stock.On the downside, he notes that the stock has run up so much that it is vulnerable to a pullback if Lennar’s performance is anything less than stellar.
Orders, he pointed out, may slump due to normal seasonal shifts, while lower interest rates may have less impact than anticipated.
The “tailwind of falling input costs in [fiscal year 2020] is likely to be offset by increased price pressure if demand overall falls short of expectations,” he wrote Tuesday.
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