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Highlights
- Citi downgrades Lendlease to "Neutral" and cuts price target to AUD7.50.
- Company posts disappointing HY operating profit of AUD122 million, missing consensus by 32%.
- Despite a 16.9% rise in stock price this year, near-term earnings outlook remains uncertain.
Shares of Lendlease Group Ltd (ASX:LLC) fell by as much as 2.5% on Tuesday, dropping to AUD6.60 per share, following a downgrade from Citi. The brokerage cut its rating on the real estate company to "Neutral" from "Buy" and reduced its price target to AUD7.50, down from AUD8.00. The downgrade came just a day after Lendlease posted its half-year (HY) results, which fell short of analyst expectations.
For the six months ended December 31, 2024, Lendlease reported an operating profit after tax (OPAT) of AUD122 million, which was significantly lower than the Visible Alpha consensus estimate of AUD180.74 million, missing projections by 32%. This weaker-than-expected result was driven by disappointing performance in the company’s construction segment, as well as higher-than-anticipated development provisions.
Citi analysts cited these challenges, including weaker construction results and a lower earnings forecast for development in FY26, as the key reasons for the downgrade. The brokerage also expressed concerns over the uncertain near-term earnings outlook for Lendlease, given these headwinds in its core operations.
Despite the setback, Lendlease’s stock has risen by 16.9% so far this year, reflecting positive sentiment earlier in the year. However, Citi’s revised target price and downgrade suggest that investors should temper expectations for the immediate future as the company navigates its current challenges.
Lendlease's earnings performance was impacted by a combination of factors within its construction and development segments. In particular, the company faced increased development provisions that resulted in lower-than-expected earnings in its development arm. The weaker-than-anticipated construction performance has further compounded concerns regarding the company’s ability to meet its targets in the near term.
In addition, Lendlease faces pressure from a slowing real estate market, which has dampened investor confidence in the broader construction and property sectors. These factors, combined with a weaker-than-expected performance, have led analysts to adjust their earnings outlook for the company.
While Lendlease remains a significant player in the global real estate sector, the company’s recent results have raised questions about its ability to deliver consistent growth in the coming quarters. As investors digest the downgrade and adjust their expectations for the company’s performance, it remains to be seen whether Lendlease can overcome these challenges and restore investor confidence in the short term.
