12:12 PM EDT, 09/19/2024 (MT Newswires) -- Homebuilders including Lennar ( LEN ) and KB Home ( KBH ) should benefit from lower mortgage rates, even though rates "appeared relatively unchanged" and homebuilder stocks closed the day "flattish" after the Federal Open Market Committee cut the federal funds rate by 50 basis points Wednesday, BofA Securities said.

The investment firm said homebuilders' sales as well as margins should improve with lower mortgage rates but cautioned that homebuilders' valuations are still elevated and require an improvement in demand to be justified.

"We believe homebuilder stocks and mortgage rates already anticipated rate cuts following the rally in recent months," BofA said Thursday.

As for earnings previews, BofA said it expects Lennar's ( LEN ) Q3 to be in-line with forecasts, though Q4 gross margin outlook could be below expectations. On the other hand, BofA said it sees potential upside to KB Home's ( KBH ) Q3 gross margin and earnings per share to be in line with expectations.

BofA Securities raised its price targets on Lennar ( LEN ) to $190 from $171 and KB Home ( KBH ) to $90 from $75, to reflect "greater confidence" in their return on equity into 2025

Price: 190.75, Change: +2.32, Percent Change: +1.23