On Tuesday, Citi adjusted its stance on Lennar Corporation (NYSE:LEN) stock, moving from a Buy rating to Neutral. The firm also revised its price target downward to $164 from the previous $174. This change reflects a cautious outlook on the housing market, with Citi analysts noting a softening in housing activity as we move into the summer months.
The downgrade comes amid expectations of decreased earnings per share (EPS) for the fiscal year 2024, with a projected 3% cut to reflect the anticipated slowdown. Projections for the fiscal years 2025 and 2026 are also slightly lower, with estimates falling by 2%.
The new price target is based on a 1.7 times next twelve months (NTM) tangible book value (TBV) multiple, which has been adjusted down from 1.8 times due to softening housing fundamentals.
Citi cites several factors contributing to the revised outlook, including a rise in housing supply and a moderation in market activity, both nationally and in key metropolitan statistical areas (MSAs) where builders are active.
While acknowledging long-term positives such as the structural undersupply of housing, Lennar's asset-light model, and a robust balance sheet, the firm suggests that these are currently offset by the weaker housing market indicators.
In terms of stock valuation, Lennar is trading at 1.72 times its last twelve months (LTM) TBV, aligning with its 10-year average. Citi's analysis anticipates third-quarter delivery volumes of approximately 20,800 units, with average selling prices (ASPs) around $423,000 and gross margins (GMs) at 23.0%.
Looking ahead, the firm projects fourth-quarter closing guidance to be set between 22,500 to 23,000 units, with flat ASPs quarter-over-quarter and GMs potentially reaching 24.2%.
For the full year, Citi expects Lennar's pricing to remain relatively stable in the second half of 2024, consistent with the company's strategy to prioritize pace over price. Despite an anticipated slight decline in gross margins year-over-year for 2024, cost reductions from Lennar's even flow production program are expected to partially offset increases in other costs, such as land. Overall delivery guidance for the year remains around 80,000 units, in line with consensus estimates.
In other recent news, Darden Restaurants (NYSE:DRI), Inc. has delivered impressive financial results for fiscal year 2024, reporting an 8.6% surge in total sales to $11.4 billion and an adjusted diluted net earnings per share of $8.88, both exceeding expectations.
The company's success is credited to sound cost management and the successful integration of Ruth's Chris Steak House. Additionally, Darden has unveiled plans for continued growth and shareholder value in fiscal year 2025, coupled with leadership changes to bolster its brand positioning.
On a less positive note, Olive Garden, one of Darden's brands, experienced negative same restaurant sales, despite outperforming industry benchmarks in guest counts. However, LongHorn Steakhouse, another Darden brand, saw an increase in total sales and outperformed the industry in same restaurant sales.
The company's outlook for fiscal year 2025 includes a guidance range of 1% to 2% for same-restaurant sales growth and a total sales growth driven by same restaurant sales and new restaurant growth. Darden also anticipates modest pricing in line with inflation, with a blended price increase of 2.5% to 3% for FY 2025.
These recent developments underscore Darden's resilience and adaptability in a challenging environment, with a strong focus on guest satisfaction and strategic cost management.
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