D.R. Horton (NYSE:DHI) stock dipped 1.4% in Wednesday morning trading after Wedbush analyst Jay McCanless downgraded shares of the homebuilder to Neutral from Outperform as its lower-than-expected net sales orders for Q1 FY2023 could prompt steeper price cuts in upcoming quarters, in a move that likely would adversely affect gross margins.

The company sold 13,382 homes in fiscal Q1, falling short of McCanless’ 15.1K forecast, as high mortgage rates and persistent inflation continued to moderate demand, according to a note he wrote to clients.

Nonetheless, the slower-than-expected volume start came as fiscal Q1 “is typically the seasonally slowest quarter of the year,” DHI President and CEO David Auld said during the company’s Q1 FY2023 earnings call. He also noted that sales activity has increased in the first few weeks of January.

And while McCanless believes demand will turn positive in H2 2023, “the combination of less unit volume than expected in F1H23 and a potential sequential decline in gross margins from 23.9% in F1Q23 to a F2Q23 range of 20% to 21% is a more dire scenario than we expected,” he warned.

In turn, the analyst lowered his 2023 EPS estimate to $10.16 from $13.51, compared with the $9.02 consensus.

The Neutral rating diverges from the Quant system’s Buy rating and the average Wall Street analyst’s Buy rating.

Previously, (Jan. 18) Re/Max reported home sales dropping 38% Y/Y in December 2022, but “demand hasn’t gone away.”