11:04 AM EDT, 06/18/2025 (MT Newswires) -- Lennar ( LEN ) earnings per share and margins are being negatively impacted by increased use of pricing incentives to drive volume, rising selling, general, and administrative expenses, and weaker average selling prices and sales volumes, RBC Capital Markets said in a report emailed Wednesday.

The homebuilder is facing significant headwinds, with RBC cutting fiscal year 2025 EPS estimates by 10% to $8.48. The company's fiscal Q3 EPS guidance of $2.00 to $2.20 also fell well short of the Wall Street's $2.74 consensus.

Management pointed to sustained affordability challenges in the housing market, noting that lower pricing, aided by elevated incentives, remains the key lever to drive demand. However, this strategy is putting further strain on margins and returns, as SG&A expenses continue to balloon, RBC said

The tone of the recent earnings call was described as "quite negative." Management articulated a view that "with a quick fix on rates appearing unlikely, lower pricing is the main lever to restore affordability and maintain vols," the report said.

Gross margins for the fiscal Q2 declined, and management indicated a need to "apply max pressure to all supplier/trade partners" to stabilize profitability, RBC said.

RBC has a sector perform rating on Lennar ( LEN ) and lowered its price target to $98 from $122.

Price: 105.06, Change: +0.45, Percent Change: +0.43