Beazer Homes (BZH, Financial) is proceeding well with its turnaround strategies. It has back-to-back produced two strong quarters, where its results outperformed the market estimates. Its revenue and earnings grew 13% and 22% respectively in the last reported quarter. Looking ahead, it continues to work aggressively with its 2B-10 plans that should accelerate its top and bottom line performance.
Good-looking outlook
Beazer Homes expects good time ahead. It is seeing higher average sales price on the back of higher prices nationally and improving mix of communities. Also, Beazer is seeing higher demand in the market for homes. It considers more active communities and higher average sales price to be the main drivers for its growth ahead.
Going forward, the company should benefit from strong outlook, as Freddie Mac expects total housings to accelerate by 20% from 2014 to 2015. Beazer Homes expects substantial increase in its revenue for the full year due to growing larger base of communities. It projects mid-teens growth for its average community count for the year.
Its CEO, Merrill said, “Our community count should lead to growth in new home orders, closings and average selling prices, allowing us to make further improvements in adjusted EBITDA in 2015 and positioning us to reach out 2B-10 objectives by the end of 2016.”
2B-10 plan to boost its performance
Beazer remains solid on its 2B-10 plans. It focuses on improving on five key metrics such as sales per community, average selling price, average community count, gross margin and SG&A. It remains upbeat to generate over $2.0 billion with EBITDA margin of 10% from this multiyear plan. It has made significant progress against each of these metrics.
It is selling three homes per community per month, which is expected to improve once the housing market unleashes pent-up demand. Its average selling price has been $325,000 per home. Also, it expects the average selling price to grow more than 10% in this fiscal year. Beazer enjoys robust 170 active communities that should fuel its sales performance this year. Its homebuilding gross margin has been 22% and remains solid with SG&A, no higher than 12% of revenue.
The company has about 57 communities that are under construction. It has done away with the development of 33 communities that are ready for sale. In addition, Beazer has a strong pipeline of 90 communities for this year. It plans to complete construction for at least 45 communities in the coming six months. This is not all as it remains on track to add an extra 150 communities by the end of September. This will account for approximately 12% growth for its communities annually. This is a true validation for its 2B-10 plans.
Additionally, the company expects mid-single digit growth for closings this year. It expects revenue growth to come better at closing growth. The recent changes in closings are generating more profits for the company. The company expects fewer closings in the first-quarter as compared to the first quarter 2014 with an average selling price of $300,000.
Conclusion
Beazer Homes is a good bet. It has started yielding returns to shareholders and investors. Also, it is progressing well against its turnaround strategies, particularly with 2B-10 plans.
Moreover, the stock is really cheap. It has trailing P/E of 17.48 and forward P/E of 8.85 that demonstrates a lot of room to expand for the stock. However, the stock does not have good profit and wealth generation metrics. Its profit and operating profit margins are 2.35% and 4.37% respectively, while its ROE stands at 13.44% for the last twelve months. Its balance sheet carries total cash of $348.92 million and has total debt of $1.54 billion.
