Investing

Morgan Stanley Just Bet Against Berkshire Hathaway’s Favorite Homebuilder

Morgan Stanley just issued a sell rating on a homebuilder that Berkshire Hathaway keeps buying in larger and larger quantities, and the reasoning behind each side reveals a fundamental disagreement about time, risk, and when housing recovers.

By Omor Ibne Ehsan
Published October 2, 2026, 8:45am ET · 3 min read

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Several tall, modern apartment buildings in a black and white photograph are overlaid with prominent red and green financial candlestick charts. The candlesticks vary in size and color, suggesting market fluctuations against the stark architectural backdrop.
Financial market indicators overlay a housing complex, reflecting the current investor sentiment and volatile nature of homebuilder stocks amidst new analyst ratings. © NVS my world / Shutterstock.com

On October 1, 2026, Morgan Stanley (NYSE:MS | MS Price Prediction) started covering Lennar (NYSE:LEN) with an Underweight rating, its version of a sell rating. It set a $65 price target.

Lennar shares barely moved. The stock rose 0.67% in that session and closed at $82.14. It had already fallen 18.88% year to date, so investors had likely priced in much of the bad news.

The buyer on the other side helps explain the calm. Berkshire Hathaway (NYSE:BRK-B) crossed 10% ownership of Lennar, and it kept buying through the end of the month.

LEN price target

That puts a major bank’s bearish call against a long-term owner looking to buy more. Both can read the same numbers because they operate on different time frames.

Morgan Stanley’s Objection Is About Margin

Morgan Stanley wrote that “Lennar’s land-light transition needs to deliver better earnings, and higher finished lot costs and sustained incentives could offset the benefit.”

Land-light means Lennar buys options on lots from outside property owners instead of owning the land itself. This ties up less capital but reduces profit. Lennar owns fewer than 2.5% of about 488,000 controlled lots.

Gross margin on home sales already fell to 15.8% in the fiscal third quarter, down from 17.5% a year earlier, and incentives ran near 12.0%.

Morgan Stanley also rated two other builders Underweight. Its only Overweight went to Toll Brothers (NYSE:TOL), with a $159 target.

This rating adds to an already bearish majority. Lennar has 5 strong sell and 3 sell ratings, compared with 1 buy, 1 strong buy, and 8 holds. The consensus target of $80.08 sits below the share price, meaning the average analyst sees downside, though targets often lag reality.

LEN analyst ratings

What Berkshire Is Buying

Berkshire held 13.1 million shares at the end of June. The stake reached about 26.6 million shares after purchases from September 28 through September 30. The timeline complicates any link to Warren Buffett. Berkshire’s original 2023 stake was about 153,000 shares. Buffett stepped down as chairman on September 18, with Greg Abel as chief executive.

Berkshire does not disclose which manager makes each purchase, so whether this is a Buffett call or an Abel call remains an open question (if you want to borrow Buffett’s homework elsewhere, we sorted the seven cheapest dividend payers in Berkshire’s portfolio into a free report here).

At this price, a buyer gets a large controlled land position, homebuilding debt at only 16.6% of total capital, and a claim on the day homes become affordable again. Berkshire can wait a full cycle for that return. Morgan Stanley is estimating the next few quarters.

Weak Results and Rising Rates Pressure Lennar

Adjusted EPS of $1.23 missed the $1.30 consensus. Management cut full-year delivery guidance to 80,000 to 81,000 homes.

The 10-year Treasury yield rose to 5.29% on September 30. Higher rates make mortgage buydowns more expensive, putting the fourth-quarter margin guide of 15.5% to 16.0% at risk.

LEN price scenario

Berkshire can wait years without harm. A retiree holding shares with a -34.68% one-year return may not have that patience.

Toll Brothers, Morgan Stanley’s preferred builder, sells to wealthier buyers who depend less on financing incentives. Berkshire shareholders hold Lennar as one small part of a diversified company.

Watch fiscal fourth-quarter gross margin. A result below 15.5% would support Morgan Stanley’s case. A close below the $75.70 52-week low would put the stock at a new 52-week low.

Contact [email protected] for any questions or corrections.

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Omor Ibne Ehsan

Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.

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