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$4.28 0.19 (4.65%)
10/13/2008 4:01 PM

Beazer Homes USA, Inc. (BZH)

CAPS Rating:
*

Designs, sells and builds single family homes in various locations within the United States. Designs homes at various price points to appeal to homebuyers across various demographic segments.

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Avatar NetscribeHomeBui (< 20) Submitted: 2/28/07 8:51 AM : Underperform Start Price: $40.04 BZH Score: 60.03

Beazer designs, builds and sells homes for single families across five geographic regions namely, West, Mid Atlantic, Florida, Southeast and Other. These regions also form the reportable business segments as well. Catering to such a large number of markets help the company to deal with risk in case some markets are weak.

Revenues for the year 2006 had improved 9.3% while the 1Q 07 witnessed a 27.4% decrease. Average sales price has improved 1% in the first quarter to $280,300. The number of homes closed declined by 30.5% and the net loss stood at around $59 million. Additionally a debt of almost $1.7 billion and a cash position of only $150.2 million mean that the company is highly leveraged.

The homebuilding industry had an amazing run from 1995 to 2005 with around 13.5 million homes being built during this period. But things have gone downhill since then. Speculative buying, inflated prices in some hot markets and variable interest mortgage have taken their toll on the industry. Endorsing the same, the first quarter of 2007 faced extremely low levels of demand, high cancellation rates and significant levels of discounting. Even competitors like Toll Brothers, a leading builder of American luxury homes have reported lower revenues.

Industry experts do not expect this weak environment to end anytime soon. The backlog at the end of the period was around 4221 homes and $1.29 billion in units and sales dollars respectively. The unit backlog is down 54% from last year and 17% from the previous quarter. Beazer has already announced that it expects sales to be at the low end of their 12,000 to 30,500 homes outlook for FY 07. Additionally, even if the company has an excellent spring selling season, these sales would not close until after September 2007 which is its fiscal year end. In such a hostile industry environment, it would not be advisable to rely on this scrip, with the company’s going expected to be tough in 2007.

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Avatar NetscribeHomeBui (< 20) Submitted: 5/22/07 9:29 AM

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While the company mentioned its goal to be in the top quartile of its peer group with respect to margins and returns, the same was not visible in the recent results of Beazer Homes which displayed weak margins. Yet it reiterates its focus on maintaining balance sheet strength, continue to reduce costs, thereby positioning it to take advantage of those opportunities that will arise when conditions stabilize.

For the six months ended March 2007, its revenue decreased by 31% to $1.63 billion on account of lower sales from homebuilding operations. Net losses totaled $102 million vs. an income of $194 million due to decrease in gross margins reflecting higher levels of discounting and reduced revenue volume and presence of $10 million loss on equity in unconsolidated joint ventures vs. an income of $682 million.

Company closed 5.4 million deals during the six month period down by 33%. Besides the future does not seem profitable as the new orders standing at $5.86 million have reduced by 28%, and the backlog units at the end of the quarter was reported to be 5.56 million deteriorating by 40%. The current housing market environment continues to be characterized by lower demand and higher inventories, with heavy discounting needed to drive meaningful sales volume. Given current market conditions, and low visibility as to when conditions may improve, company withdrew previous outlook and EPS guidance.

Estimates for 2007 housing starts is about 1.48 million while for project starts in 2008 will be around 1.56 million, before a more palpable rebound to 1.67 million starts in 2009. This suggests a long cycle-bottoming process for the industry. Paralleling the recent decline in the pace of the industry, the company’s backlog and new orders have decreased which indicates a slowdown. The prospect in the future seems bleak as the reducing margins will also shrink the profitability further. Besides the company has reported negative revenue growth in contrast with industry growth of 15.69% which gives an investor enough caution before putting his hard earned money.

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