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.

Those looking for attractively priced large cap stocks with a bright outlook might want to read this free report from the experts at the Motley Fool.

They’ve picked their best blue-chip stock ideas for FY19 and you can find out what these are for free by following the link below.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2019."

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!