Options Bears Circling Sinking Homebuilder Before Earnings

Lennar will post its second-quarter report before the close next Tuesday

Digital Content Manager
Jun 16, 2022 at 1:34 PM
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The shares of Lennar Corporation (NYSE:LEN) are down 5.9% at $64.98 at last check, as investors prepare for the homebuilding company's second-quarter earnings report, which is due out before the open on Tuesday, June 21. Several factors are working against LEN ahead of the event, including today's broad-market slump, and a rise in the 30-year fixed-rate mortgage to 5.78% from last weeks 5.23%, marking its biggest one-week jump in 35 years.

A price-target cut from UBS isn't helping matters, after the analyst lowered its objective to $108 from $154. Several of Lennar's competitors received similar price-target cuts, including Toll Brothers (TOL) and KB Home (KBH). The analyst noted that these stocks are "not only telling us the housing cycle is over, but that big volume declines, price declines and land impairments are ahead."

A closer look at analyst sentiment shows most covering brokerages are still optimistic on the equity, with eight of the 11 in coverage calling it a "buy" or better. What's more, the 12-month consensus price target of $110.19 is a 69.7% premium to current levels. 

Considering Lennar stock's technical setup, more downgrades could follow its upcoming earnings report. The security has lost 44.2% in 2022, and 29% in the past 12 months. Today's drop puts LEN at its lowest level since July 2020. The shares are also eyeing their seventh-consecutive drop, following a failure at the 80-day moving average. 

len chart june 16

The equity does have a pretty upbeat post-earnings history over the past two years, nabbing five next-day wins, compared to just three losses. The stock has averaged a move of 4.4% after these eight instances, regardless of direction. This time around, the options pits are pricing in a 7.5% next-day move for the stock. 

Speaking of options pits, Lennar's are seeing an unusual amount of bullish activity today. So far, 3,515 puts have been exchanged, which is double the intraday average, and more than four times the number of calls traded in the same time period. The most popular contract is the June 65 put, which expires tomorrow, followed by the July 50-strike put, with positions being opened at both. 


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