Shares of D.R. Horton ( NYSE: DHI ), -2.4% , KB Home ( NYSE: KBH ), -2.4% , and Lennar ( NYSE: LEN ), -2.5% , all slid in Friday premarket trading after RBC Capital Markets analyst Mike Dahl downgraded the homebuilder stocks on the basis of gloomy housing prospects through 2023.
Amid his broad industry concerns, Dahl expects DHI to keep "aggressively" adjusting pricing and incentives to maintain volumes at the expense of worse-than-expected margins, he wrote in a note.
"Given our view of a challenging macro environment and that DHI's strategy will be to emphasize pace/orders over price/margins, we believe that Street and investors are underestimating the magnitude of margin pressure and earnings declines."
That said, the analyst sees 2023 orders sliding 4.5% Y/Y, unchanged from his prior estimate, and expects gross margin to drop 9.4% Y/Y to 18.5% compared with 20.4% in his prior view.
For Lennar ( LEN ), Dahl suspected that the company's recent guidance on closings and its call for gross margin to bottom in Q1 is "overly optimistic against a market continuing to see acute demand pressures and increasingly aggressive peer responses on price reductions," he wrote in a separate note, downgrading the stock to Underperform.
With margin downside expected to be a negative catalyst going forward, Dahl sees LEN's EPS at $6.70 compared with the $9.61 Street estimate.
In another note, Dahl cut KB Home ( KBH ) to Sector Perform from Outperform after the company's worse-than-expected Q4 earnings and revenue earlier this week.
"We expect GM% to decline sequentially through the year, bottoming in 4Q, as KBH now acts more aggressively to reduce pricing following the sharp 80% order decline in 4Q."
Take a look at how the stats of LEN, DHI and KBH compare with one another in the peer comparison tab .
Earlier, Seeking Alpha contributor Bela Lakos viewed KBH as a Neutral pick, as it "may navigate through 2023, but growth in the coming years may be difficult to achieve without generating new sales."
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D.R. Horton, KB Home, Lennar stocks dive after downgrade at RBC