- We take a look at Beazer Homes for the first time here in 2021 after the company delivered a solid second quarter report.
- Backlogs are growing rapidly and the company should deliver solid earnings growth in FY2021.
- A full analysis is presented in the paragraphs below.
- I do much more than just articles at The Insiders Forum: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
"Home is the place where, when you have to go there, they have to take you in."― Robert Frost
We take our first in-depth look at Beazer Homes (NYSE:BZH) so far in 2021. The company just reported first quarter numbers and provided some encouraging guidance for FY2021. If the company can deliver, this year should be one of earnings growth for Beazer and capital appreciation for its shareholders. We revisit this home building concern below post Q2 results. (The company's fiscal year ends on September 30th.)
Beazer Homes is headquartered in the Atlanta region and currently builds and sells homes in Arizona, California, Nevada, Texas, Delaware, Indiana, Maryland, Tennessee, Virginia, Florida, Georgia, North Carolina, and South Carolina. This well known builder doesn't have the size of a Lennar (LEN) but is geographically diversified. The stock currently trades right at $22.50 a share and sports an approximate $670 million market capitalization.
The shares have had a remarkable rally over the past year off their pandemic lows. On Thursday, the company posted second quarter numbers. Earnings per share came in a 81 cents a share, a quarter a share over the consensus. Revenues came in a little light at $550 million, but that was still an increase of over 12% from the same period a year ago. Management provided an optimistic view on how it sees 2021 unfolding for the company. Here are some tidbits.
- Adjusted EBITDA of $64.2 million, up 46.2%.
- Homebuilding gross margin was 17.8%, up 170 basis points. Excluding impairments, abandonments and amortized interest, homebuilding gross margin was 22.2%, up 140 basis points.
- Net new orders of 1,854, up 11.6% on a 42.3% increase in orders/community/month to 4.7 and a 21.6% decrease in average community count to 131.
- Dollar value of backlog of $1,386.4 million, up 54.9%
This compares favorably to the guidance the company gave after they posted first quarter results late in January. Leadership also stated that it 'now expects fiscal 2021 earnings per share to be above $3.00'. The company earned less than two bucks a share in FY2020.
Analyst Commentary & Balance Sheet:
The company continues to do a solid job improving its balance sheet. Beazer had just over $605 million in total liquidity upon the close of the quarter compared to just $500 million at the end of last quarter. The company has few debt obligations expiring in the coming few years. Beazer repurchased $9.7 million of its outstanding 5.875% unsecured Senior Notes due October 2027 in the second quarter as well as the company continues to reduce its financial leverage.
Oddly for a well known builder with a decent size market cap, the company gets little attention from Wall Street analysts. Sidoti was the last analyst firm to chime in on Beazer when they initiated the shares as a new Buy with a $22.00 price target back on December 11th.
I was very overweight home builder stocks in my portfolio throughout most of 2020 as I saw the exodus out of the Big Apple and other dense, high tax cities early in its development. However, I started to lighten up in a big way in this sector in the fourth quarter of last year after some big rallies in these names.
Source: Lumber Prices
I am now very much underweight this part of the market. I still think housing activity will be strong going forward. However, significant increases in the cost of lumber, labor, copper and other building supplies are going to have a substantial impact on operating margins in the months and quarters ahead even if home prices continue to increase. That said, I still own Beazer within my portfolio as it is a cheap play at roughly 7.5 times forward earnings.
Options are available on Beazer stock and they are quite liquid. This is why most of my current position in BZH is within covered call holdings. That is not a knock on Beazer, this pretty much applies across my entire portfolio given my increasingly leery view of the overall market.
"Perhaps home is not a place but simply an irrevocable condition."― James Baldwin, Giovanni's Room
Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum
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This article was written by
We are a team of analysts led by Bret Jensen, Chief Investment Strategist at Simplified Asset Management.
We run the investing group The Insiders Forum where we specialize in small and mid-cap stocks that insiders are buying. The Insiders Forum portfolio managed by Bret Jensen consists of 12-25 top stocks in different sectors of the market that are attractively valued and have had some significant and recent insider purchases. Our goal is to outperform the Russell 2000 (the benchmark) over time.
Analyst’s Disclosure: I am/we are long BZH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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