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Bear of the Day: Beazer Homes (BZH)

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Beazer Homes USA, Inc. (BZH - Free Report) is facing rising mortgage rates and high home prices in 2019. This Zacks Rank #5 (Strong Sell) has seen its stock plunge in 2018 and is now trading for just 5x forward earnings.

Is the worst over?

Beazer Homes is one of the largest single family homebuilders in the United States. It offers homes in Arizona, California, Delaware, Florida, Georgia, Indiana, Maryland, Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia.

With a market cap of $352 million, Beazer is headquartered in Atlanta.

Another Beat in the Fiscal Fourth Quarter

On Nov 13, Beazer reported its fiscal fourth quarter results and beat the Zacks Consensus by $0.21. Earnings were $1.15 versus the consensus of $0.94.

It was the 7th consecutive earnings beat in a row.

Revenue was up 14.4% to $761.5 million as the average selling price rose 6.6% year-over-year to $372,600.

It delivered 2,044 homes, up 7.4%.

Gross margin fell 40 basis points, however, to 21.6%. And unit orders were down 0.8% to 1,305 but that was impacted by Hurricane Florence.

It's marketing itself as a first-time and active adult home builder, which it hopes should help it weather the higher mortgage rates. This is about 80% of its total sales.

First-time homes are in strong demand. Additionally, many older adults buying in an active adult community pay with cash so the impact of rate increases may be muted.

Debt Reduction and Share Repurchases

With the solid cash flow over the last year, the company retired the remaining $96.4 million of outstanding 5.75% unsecured Senior Notes due 2019. This was part of its 3-year $250 million debt reduction plan.

It has no debt maturities until 2022.

It's putting more money to work in fiscal 2019, however. It intends another $50 million in debt repurchase and $50 million in share repurchases.

Estimates Cut

With flat order growth expected in fiscal first quarter and worries remaining over next year, it's not surprising that the analysts have adjusted their estimates in the past month.

2 estimates were cut for fiscal 2019 and one was cut for fiscal 2020 over the last 30 days. Zacks only has 2 estimates for fiscal 2019 so the analysts are in agreement.

Beazer made $1.99 in fiscal 2018. It's expected to make $1.95 in fiscal 2019 which is an earnings decline of 2%.

Analysts are a little more bullish about a recovery in fiscal 2020, though, as the Zacks Consensus is at $2.37, up 21% from 2019.

Shares Hammered But Recovering?

All of the home builder stocks have been hammered in 2018. Beazer is down 45% year-to-date.  

Here is the damage on them over the last year.



However, Beazer might have bottomed as its rebounded 31% over the last month.

Beazer is cheap, but that's common at this stage in the real estate cycle. It trades with a forward P/E of 5.4.

The home builders are in the bottom 12% of Zacks Industry Rank. That's not surprising given the rising mortgage rates and jitters about a slowing economy.

But if you're interested in the home builder stocks, others have better Zacks Ranks. While none are Zacks #1 (Strong Buy) or #2 (Buy) stocks, DR Horton (DHI - Free Report) , Lennar (LEN - Free Report) , KB Home (KBH - Free Report) and Pulte (PHM - Free Report) are all Zacks Rank #3 (Hold) stocks.

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