Keefe, Bruyette & Woods (KBW) has adjusted its ratings for two major homebuilders, downgrading Lennar from market perform to underperform and upgrading Toll Brothers from market perform to outperform. The bank set a price target of $86 for Lennar, indicating a potential 5% decline from its recent closing price, while it set a target of $161 for Toll Brothers, suggesting a 17% upside.
Analyst Jade Rahmani pointed out that Lennar, which primarily serves entry-level buyers, is facing significant challenges due to high housing costs and inflation, which are impacting lower-income consumers.
He noted that the current economic environment, characterized by weak consumer confidence and high mortgage rates, is forcing builders like Lennar to offer substantial incentives to attract buyers. In contrast, Toll Brothers is expected to see order growth of 6% to 8% in the 2026 to 2027 period, benefiting from its affluent customer base, which is less affected by the economic downturn.
This customer base typically consists of buyers with high credit scores and substantial down payments, insulating Toll Brothers from the softness in the entry-level market. Following these announcements, Toll Brothers' shares rose 1.7% in premarket trading, while Lennar's shares fell by 0.3%.
Year-to-date, Toll Brothers' stock has increased by nearly 1.5%, whereas Lennar's stock has declined by almost 12%