Berkshire Just Crossed the Line on Lennar | Why the Street Is Nervous

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Berkshire Hathaway has increased its stake in Lennar (LEN) to over 10%, acquiring 2.67 million Class A shares between September 17th and 21st at an average price of $76.39-$79.41. This brings Berkshire's total stake to 23.72 million shares. Despite this significant investment, Lennar's stock has seen a recent pop of 6.6%, reaching a day high of $83.24 after a 2.32% premarket gain. However, the stock remains down over 32% year-over-year and 22.8% year-to-date. The underlying issues for Lennar stem from the housing market's affordability crisis, exacerbated by a 30-year fixed mortgage rate hitting 6.95%. The company's Q3 performance showed a 9% year-over-year decline in new orders and a 3% drop in deliveries, with gross margins narrowing to 15.8% from 17.5%. Lennar has relied on incentives to move homes. Analysts, tracked by TradingView, maintain a 'Sell' consensus on Lennar, with an average price target of $78. RBC Capital has a target of $69, and Barclays has trimmed its target to $70, while Citigroup maintains a 'Neutral' rating with a target of $85. The key level to watch for Lennar is $88.50, representing resistance. Berkshire's strategy appears to be buying weakness, a classic value play, leveraging its substantial cash reserves of $367 billion as of June. This is part of a broader strategy in the housing sector, which also includes investments in Taylor Morrison, Clayton Homes, D.R. Horton, Benjamin Moore, and Johns Manville.

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