CSFB Cuts Homebuilders on Valuation

It wouldn't commit new money at these levels.
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Credit Suisse First Boston downgraded several homebuilder stocks Friday because they are either at or near the brokerage's price targets.

"Since the beginning of August, the group has increased 43% and is up 104% year to date on fundamentals and an improved sentiment towards interest rates," wrote analyst Ivy L. Zelman in a research note.

As a result, the analyst cut the ratings on


(LEN) - Get Report

, which has a $97 target price,


(MDC) - Get Report

with a $68 target price,



, which has a target price of $93, and

Toll Brothers

(TOL) - Get Report

with a $40 price target, to neutral from outperform.

Zelman said Credit Suisse's price targets are based on multiples of 9-10 times forward earnings, but that each of the four homebuilding stocks have exceeded that.

"Although we rank each of these companies in the top tier of that group with respect to business strategy and long term sustainable earnings growth, we can no longer recommend putting new money into the names at the current levels," said Zelman.

To lift the homebuilders' ratings, Ivy believes investors would need to expect 13% to 27% incremental earnings growth.

Shares of Lennar closed at $94.99 Thursday, while shares of MDC finished at $70.10. Ryland's shares ended at $92.93 and Toll Brothers closed at $40.07.