Beazer Homes (BZH, Financial) is a good turnaround story. Driven by growth in the housing market, the company is seeing good improvement in its financial performance. However, things don't seem easy for Beazer as the company isn’t seeing strong demand for new homes. So, can Beazer grow despite challenges? Let's check.
Smart strategies
The company is now focusing on various aspects to improve its profitability. It is counting on its previously undertaken 2B-10 Plan to reach $2 million revenue and 10% growth in the EBITDA. There are some key metrics on which Beazer is focusing which it thinks will be a key contributor to its plan. Under this the company will be laser focusing on some aspects such as sales per community per month, ASP and community count. With this Beazer is expecting to see a commendable growth in revenue and gross margin.
Beazer benefited from a big jump in ASPs, reflecting some of the strategic changes in its business mix. Despite the soft business metrics, Beazer is confident of achieving objectives of its 2B-plan. The company is seeing more active communities and higher average sales price and it thinks these key points to be primary growth driver for it in future. The focus of the company on these points are expected to strengthen its long term prospects as well.
The recovery will drive growth
The housing industry is recovering; however, the growth is slow, but Beazer seems well prepared for the upcoming boom in this segment. The company is eagerly waiting to see the greater volumes in the new home market in the coming years. Beazer is expected to be benefited by the recovering U.S. economy as well. This growing economy is leading rapid expansion of millennial households into prime home-buying ages. Further with this, the lower interest rates and the reasonable home prices will lead an increase in the home affordability. This will give Beazer bright chances of improving its performance in the coming quarters.
However, the company is also disappointed by the underperformance on many grounds. To cope up with this opposite situation, Beazer is modifying its targets of operating metrics which are expected to lead the company towards better execution of its 2B-10 goals at least for the next two years,
The housing industry turnaround is in its infancy and will take some time to fully turn around. The company has taken a defensive approach to the future and has posted mixed forecasts for the financials. It is expecting year-over-year growth in the average community count to be in mid-teens while on the other hand it is forecasting flat absorptions for fiscal 2015.
Conclusion
Moving on to the fundamentals, the stock looks reasonable with a trailing P/E of 17.48 while the forward P/E of 8.85 shows slow earnings growth. Also for the next five years, its earnings are showing poor growth with a CAGR of just 4.00% which is lower than the industry average of 18.59%. Considering all these facts it can be seen that though Beazer is improving but the growth in the housing industry will take some more time to be in full form until then the investors should stay away from the stock till it shows concrete signs of gaining market share.
