Barclays on Homebuilders: Upgrades Lennar, Downgrades Toll (LEN, TOL, XHB)

Traders in the Homebuilding sector are responding to an earlier call from Barclays in which the firm recommends buying shares of Lennar (NYSE: LEN) and holding shares of Toll Brothers (NYSE: TOL). The stocks seem to be trading appropriately: Lennar shares are trading nearly 2% higher, and Toll shares are moving about 1.2% lower.

• Lennar upgraded from Equalweight to Overweight, price target raised from $17 to $20. The firm admits that Lennar has had a good run so far this year (up more than 26%), but sees further upside "driven by improving profitability and an easing of valuation discounts primarily associated with joint ventures." Barclays says that it sees solid progress toward profitability from the entire homebuilding sector, and believes that "Lennar is very well positioned in this regard." With Lennar stock last trading at $16.43, the firm's new price target represents potential upside of about 22%.
  
• Toll Brothers downgraded from Overweight to Equalweight, target lowered from $23 to $21. Barclays believes that Toll shares will lag peers as other homebuilders improve results more quickly over 2010. The firm predicts that Toll will report negative earnings in each quarter of 2010, but sees losses narrowing during the second half of the year. On a positive note, Barclays called Toll's balance sheet "the strongest... in its universe", but also said that this is already baked into the stock price. Shares of Toll are trading around $19.87 today, suggesting upside of just 6% to the firm's new price target.

Check out the SPDR S&P Homebuilders ETF (NYSE: XHB) to get a broad view of day-to-day performance in the sector. The fund is up 0.13% today.

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