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Citigroup thinks only one thing can save Lendlease Group’s (ASX:LLC) share price

How can a company that’s so well placed to benefit from an infrastructure building boom get things so wrong?

That’s the question on the lips of Lendlease Group’s (ASX: LLC) shareholders who have to endure seeing the Lendlease share price crash for another day after management announced a $350 million after-tax write-down due to some problematic engineering projects.

The stock tumbled 5.1% to a two-year low of $13.52 in after lunch trade – making Lendlease the third-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index after the Steadfast Group Ltd (ASX: SDF) share price and the Afterpay Touch Group Ltd (ASX: APT) share price.

There may only be one way to win back investors and that’s to get rid of its engineering division, according to Citigroup who downgraded the stock to “hold” from “buy” and slashed its price target to $15.06 from $22.36 a share.

“LLC’s engineering track record is abysmal, having lost a total ~A$500m over the past five years,” said the broker.

“We question how this division can get ‘back on track’ when it appears it hasn’t been on track in the first place. We reiterate our view that Engineering should be spun off (if possible) and believe any path to a share price recovery is now largely dependent upon LLC divesting Engineering in one form or another.”

Citi isn’t the only one downgrading the stock. Macquarie Group Ltd (ASX: MQG) has cut its recommendation on the diversified engineering construction and property group to “neutral” from “outperform” as warns that Lendlease is on a slippery slope and buying the stock is like trying to catch a falling knife.

“We are surprised by the downgrade quantum in such a short time period. Whilst wet weather may have been a minor factor in NSW, a doubling in the provision since August is concerning,” said the broker who has a price target of $15.08 on the stock.

“LLC indicated the impairment predominately relates to projects previously identified. Despite this, with major tunnelling projects still to complete, including Melbourne Metro and WestConnex, the market will assign a higher risk premium to these earnings.”

This higher risk premium explains why Lendlease’s share price is trading so far below brokers’ downgraded price targets.

While brokers have been quick to lower their valuation on the stock, Lendlease’s current share price is significantly below these downgraded price targets.

This indicates to me that the market is anticipating further write-downs and that management’s credibility is shot.

I would avoid this stock, at least for now.

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Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO and Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Steadfast Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.