Hunterbrook Says Lennar's Land-Banking Strategy May Be Blowing Up Margins

Lennar Corp Class A (NYSE:LEN) shares are well off session highs Tuesday afternoon after an early rally faded following a bearish Hunterbrook report that questioned the homebuilder's land-light strategy, margin outlook and accounting treatment of land-option costs. Benzinga has reached out to Lennar for comment and will update if the company responds. The stock climbed as high as about $88.71 early Tuesday before retreating to around $84.82 in afternoon trading. Lennar stock is showing upward movement. Why are LEN shares climbing? Hunterbrook Says Lennar's Land-Banking Strategy Could Be Costing Billions In its Tuesday report, Hunterbrook argued Lennar's shift toward third-party land banks may be far more expensive than investors appreciate. The report said Lennar moved 98% of its pre-construction land off its books and could now be paying more than $2 billion annually in option-related fees, a figure Hunterbrook said rivals the company's net income. Report Flags Balance Sheet Build, Margin Risk And Home Quality Concerns Hunterbrook also said many of those costs may be accumulating on the balance sheet under deposits and pre-acquisition costs instead of immediately flowing through the income statement, potentially delaying the full margin hit. The report pointed to a roughly $2.2 billion gap between where Lennar's deposit line theoretically should have moved and where it actually moved after the Millrose spinoff. The report also raised concerns about home quality and execution, arguing Lennar's push for volume in a weak housing market may be pressuring both pricing and profitability. Analysts Turn Cautious On Lennar As Price Targets Come Down Analyst Consensus & Recent Actions: The stock carries a Hold Rating with an average price target of $106.43. Recent analyst moves include: Truist Securities: Hold (Lowers Target to $90.00) (Mar. 31) Keefe, Bruyette & Woods: Market Perform (Lowers Target to $105.00) (Mar. 18) Evercore ISI Group: Underperform (Lowers Target to $89.00) (Mar. 17) LEN Price Action: Lennar shares were flat at $85.33 at the time of publication on Tuesday. The stock hit a new 52-week low Tuesday afternoon, according to Benzinga Pro data. Image: Shutterstock