Seeking Alpha
Long/short equity, contrarian, research analyst, portfolio strategy
Profile| Send Message|
( followers)  

Since my previous mention of Beazer Homes USA, Inc. (NYSE:BZH) on May 22, 2012, shares are up more than 20%.

Click to enlarge

BZH Chart
BZH
data by YCharts

Sector Rally

The biggest reason for the rally in Beazer Homes is the improving housing market. The homebuilding sector has been among the strongest in recent months. Despite being up by more than 20%, as shown by the chart below, BZH has lagged behind other speculative homebuilders such as KB Home (NYSE:KBH), Standard Pacific Corp. (NYSE:SPF), and Hovnanian Enterprises, Inc. (NYSE:HOV).

BZH Chart
BZH
data by YCharts

I believe Beazer Homes is poised to play catch-up with other names in the sector.

July Capital Raise

In mid-July, Beazer Homes raised a significant amount of capital. The capital raise is one of the reasons why BZH has underperformed its peers. However, with the capital raise out of the way, investors do not need to worry about more dilutive offerings anytime soon. The capital raise has helped to ease worries about BZH's financial position.

Fitch Raises Beazer Homes USA Credit Rating

On September 6, Fitch Ratings upgraded BZH to B- from CCC and said the outlook was stable.

Short Interest

In my previous piece, one of the reasons I was bullish on Beazer Homes was the high short interest. At the time, short interest in BZH stood at 11.92 million shares or 16% of the float. Now, after a more than 20% move higher, the short interest stands at 22.5 million shares or 30% of the float. The increase in short interest means that the potential for a short squeeze higher remains.

Insider Buying

In early August, director Brian C. Beazer purchased 20,000 shares of stock. I view this as a vote of confidence in Beazer Homes.

Bullish

Despite the move higher in the stock, I remain bullish on Beazer Homes. The improvement in financial shape, increase in short interest, and insider buying are all reasons why I expect Beazer Homes to play catch up with peers.

Source: Updating My Outlook For Beazer Homes