Zacks Investment Research downgraded shares of Lennar Corp -A (LEN) from OUTPERFORM to NEUTRAL on September 30, 2013, with a target price of $38.00.
We revert to a Neutral recommendation on Lennar from Outperform as we believe that the recent spike in interest rates is slightly slowing down the housing recovery. Lennar's strong third-quarter results, on the back of strong momentum in the housing market, beat the Zacks Consensus Estimate for both earnings and revenues. Adjusted earnings of $0.54 per share grew 35% year over year driven by growth in both revenues and margins. However, even though homebuilding revenues grew 53% in the quarter, net order pace slowed down owing to the recent increase in interest/mortgage rates. Management is optimistic that the moderating sales pace is only temporary. The company is confident of seeing strong demand in future quarters as buyers adjust to the rising interest rates and return to the market, credit standards ease and supply remains limited. However, we prefer to remain on the sidelines until we see a rebound in order growth.
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