Shares of major homebuilders declined more sharply than the broader market Tuesday after an analyst warned that a legal dispute clouds Lennar's (LEN) prospects, while KB Homes' (KB) outlook will likely continue to be hurt by falling home prices.
Citi Investment Research analyst Josh Levin cut his price target for Los Angeles-based KB Home to $15 from $16 a share and wrote in a research note that the controversy involving Lennar presents "a risk that investors cannot properly analyze."
Miami-based Lennar last week said it was suing a corporate watchdog group that recently accused the homebuilder of fraud. Lennar claimed the allegations by the San Diego-based Fraud Discovery Institute were false, and were prompted by the group's ties with a developer being sued by Lennar.
The Fraud Discovery Institute's top official, Barry Minkow, issued a report citing the top 10 flags for fraud at Lennar, including a claim that the builder's joint ventures were operated as Ponzi schemes. The report sent Lennar's stock price tumbling by 20%.Levin said in a research note that the allegations against Lennar "still strike us as less than credible. However, we have the distinct sense that Minkow will continue to pursue the matter and make more noise in the coming weeks either on his own or through the media." Shares of Lennar fell $1.07, or 13.6%, to $6.78 at the close. In cutting his price target for KB, Levin wrote that KB "is ahead of schedule with regards to its strategy of shifting its product mix" by constructing smaller, more cost-efficient homes. The shift has helped improve the company's profit margin recently, Levin said.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV