Raymond James analyst Buck Horne reiterated an Outperform rating on the shares of Lennar Corp (NYSE:LEN) raised the price target from $150 to $165.
Lennar reported core EPS of $5.17 for its F4Q23 results, topping estimates of $4.59.
Another upside quarterly result and a well-timed reprieve in mortgage rates stand to unlock significant pent-up demand this spring, says the analyst.
However, in 4Q, Lennar had to battle a much tougher affordability equation as mortgage rates flirted with the 8% threshold in October, adds the analyst.
The housing market briefly appeared near a tipping point in October, as buyers increasingly struggled with the sharp rise in mortgage rates to ~8%, the analyst writes.
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The demand rebounded in response to the rapid decline in rates in November and thus the margins on deliveries in 1Q24 will reflect the heightened incentives and advertising costs related to 4Q orders, says the analyst.
By combining price reductions, mortgage rate buydowns, and other incentives, Lennar was able to keep buyers engaged and generate 32% y/y new order growth, according to the analyst.
Meanwhile, as per the analyst, the elevated selling incentives will be felt in lower-than-expected 1Q24 gross margins.
LEN continues to successfully demonstrate the blueprint for how well-capitalized builders keep taking market share from the existing home market, writes the analyst.
Heading into 2024, the analyst says that LEN is primed with a net debt-free balance sheet, a land-light pivot, and construction cycle times that are rapidly normalizing.
The raised $165 price target projects LEN trading at 10.0x FY25 EPS, in line with its long term median multiple.
Price Action: LEN shares are trading higher by 1.14% at $148.91 on the last check Tuesday.
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