Beazer Homes (BZH, Financial) reported greater-than-estimated total loss of $22 million for its fiscal first quarter, including $13.6 million of extra warranty reserves linked to the stucco matters in Florida, and another $4 million charge linked to its discontinued operations.
A closer look
Still, the orders for Beazer enhanced 7.9% with key absorption rates as per the estimates. Beazer’s concluding community count improved to 13%. There were also further enhancements in its ASP, which improved to $296,000, an increase of 6% on year-over-year basis. Non-GAAP homebuilding gross margins enhanced by 60 basis points compared to last year to a significant 21.8%, and Beazer concluded the quarter with backlog and an ASP of $317,000, which reported at 11% greater than previous year. This resulted in a dollar value of backlog of over $560 million.
The major revenue loss faced by Beazer in the first quarter of 2015 is believed to be slightly offset by the growth in the number of orders for the quarter, and, healthy improvements in the non-GAAP homebuilding gross margins.
The overall economic environment external to Bakersfield and Texas has somewhat improved with reduction in the mortgage rates. The employment picture has also improved. Reduced gas prices have enhanced optional income. There’s an expansion in the apartment rental rates. Moreover, the key changes introduced to GSE and FHA loan schedules have been increasingly accepted by the key regulators, significantly encouraging the first time home purchasers.
Beazer is witnessing significantly higher customer traffic at its store websites throughout the year. The incoming traffic at its key communities improved during the first quarter, and, so far in the second quarter as well.
Making smart improvements
The notable improvement in the homebuilding market scenario, coupled with favourable loan regulations and enhanced customer traffic at the company’s store websites, signifies better growth prospects of Beazer and positions it suitably for robust top line growth and superior shareholder returns.
The homebuilding major has a solid backlog, enhancing sales trends and significant innovative communities to be launched this year. Hence, Beazer seems to be extremely well-positioned for delivering another impressive year of continued growth and notable progress in its 2B-10 goals. Although, there are strong headwinds from the rising profit margins for the homebuilders and the ongoing sharp decline in the oil prices, still Beazer estimates to enhance its entire year adjusted EBITDA by a minimum $20 million to about $150 million.
The improving sales trend across the key economies, in addition to the steadily growing average activity community count of Beazer, along with the expanding backlog of the company, together is forecasted to soon bring Beazer out of this falling oil pricing environment by offsetting the decline.
Currently, Beazer Homes is believed to be in overbought territory with an RSI value of approximately 71.25. There’s also a declining earnings trend for the stock with the consensus estimate for Beazer following the falling trend. Beazer Homes also carries a Zacks Rank #4 (Sell) which makes it a poor company among its peers. Therefore, after considering the combined effect of these factors, investors might be considering to leave this stock as of now.
Conclusion
Overall, the investors are advised to avoid investments into the Beazer Homes USA Inc. looking at the stock overvaluation with PEG ratio of 3.41 compared to its peers such as Lennar Corp. and PulteGroup, Inc. having comparatively better growth ratios of 1.15 and 2.70 respectively. The trailing P/E and forward P/E ratios of 33.30 and 10.69 respectively indicate improvement in the general homebuilding market conditions. The profit margin of 1.20% is extremely weak. Moreover, Beazer is significantly debt-burdened with a huge total debt of $1.54 billion against weaker total cash of $163.65 million only, restricting the homebuilding major to plan for future growth investments.
