Sector Snap: Homebuilders Slip After Downgrades

NEW YORK (AP) — Shares of homebuilders slipped on Wednesday after a UBS analyst forecast continuing difficulties for the industry despite recent signs of improvement.

Citing overvalued stock prices, analyst David Goldberg downgraded DR Horton Inc. to "Sell" from "Neutral" and Ryland Group Inc. to "Neutral" from "Buy."

DR Horton shares fell 75 cents, or 5.8 percent, to $12.16 in afternoon trading. Ryland Group shares slid 99 cents, or 4.4 percent, to $21.29.

In a note to investors, Goldberg wrote that homebuilder stocks have increased by 55 percent on average since the start of July. He said that performance is "overdone" and that a pullback of 25 percent or more can be expected in the near term.

"Given our expectation for a more gradual recovery, we believe current valuations are well ahead of fundamentals," Goldberg wrote.

He also noted that weaker demand and rising supply could hamper the industry toward the end of the year.

At the same time, Goldberg raised the price target on Lennar to $14.50, from $9, to reflect its lower risk profile. He maintained his "Neutral" rating.

Goldberg noted that since the start of the downturn, Lennar has significantly reduced risk, in part by improving manufacturing efficiencies and lowering its debt.

Shares of Lennar slipped 38 cents, or 2.6 percent, to $14.09.

Elsewhere in the sector, Hovnanian Enterprises Inc. shares slid 57 cents, or 11.4 percent, to $4.45 ahead of the homebuilder's quarterly report scheduled for after Wednesday's market close.