Lennar's (LEN) strategy of even flow production and volume growth require "aggressive incentives" and price reductions, which will impact its margins and earnings, Oppenheimer said Wednesday.
The brokerage lowered its fiscal Q2 earnings estimate for the homebuilder to $1.84 from $1.96. It also expects the company to miss Q2 gross margin guidance of 18% due to higher incentives and weaker demand. Analysts polled by FactSet expect Q2 EPS of $1.94.
Lennar is due to report Q2 results after the close on Monday.
Oppenheimer said that housing data points have remained "incrementally negative" since mid-March and spring season's strong selling conditions did not materialize as well.
Owing to its stated strategy, cross-collateralized option contracts and relationship with Millrose Properties (MRP), for which the company has to make monthly option payments, the brokerage does not expect the company to pull back on housing project starts. The company spun off Millrose Properties in February.
If the company reduces its starts and prefers price over pace, it could create a "substantial upside" potential. However, the brokerage said it does not expect to see this happening.
Oppenheimer has a perform rating on the stock.
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