On Friday, RBC Capital Markets made adjustments to its outlook on shares of Lennar Corporation (NYSE:LEN), a leading home construction company. The firm's analyst has reduced the price target for Lennar's shares to $130.00, down from the previous $160.00, while maintaining an Underperform rating on the stock.
Currently trading at $137.68, Lennar appears undervalued according to InvestingPro analysis, despite the recent price target reduction.
The revision comes as the analyst at RBC Capital expressed a significantly more cautious stance on the company's financial performance. The firm has decreased its forecast for Lennar's fiscal year 2025 earnings per share (EPS) by 27%, setting the new estimate at $11.35.
This forecast represents a significant drop from the company's current LTM earnings of $15.10 per share. However, InvestingPro data shows Lennar maintains a "GREAT" financial health score of 3.2, with 15+ additional insights available to subscribers.
According to the analyst's statement, several factors contribute to a less favorable outlook for Lennar. These include persistent high interest rates, the company's aggressive volume targets which could affect gross margin percentages, and increasing headwinds that may impact near-term margins, such as the accounting for recent acquisitions like Millrose and Rausch.
InvestingPro technical indicators suggest the stock is currently in oversold territory, trading near its 52-week low of $135.21.
The forecast also indicates a lower net income projection for Lennar, which is expected to put pressure on the company's free cash flow. The revised estimate for fiscal year 2025 is now $2.9 billion, down from the prior forecast of $3.5 billion. For context, Lennar's current levered free cash flow stands at $3.84 billion. This anticipated decrease in free cash flow could limit the company's ability to repurchase shares in the near term.
The analyst's report suggests that while some investors might consider taking profits from their negative positions in Lennar and look towards other large-cap builders, the substantial downward revisions in margin, EPS, and return on equity (ROE) support the firm's ongoing Underperform rating for the stock.
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