Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Should You Bet on a New Day Dawning for Beazer Homes?

Beleaguered homebuilder Beazer Homes USA (NYSE: BZH  ) seems to be finally gaining some business momentum, recently reporting its first annual operating profit of the past five years. The company was one of the most highly leveraged of the major homebuilders, a condition that almost sank Beazer during the financial crisis. 

Fortunately, the housing market's resurgence, evidenced by rising home sales and prices, has allowed Beazer to refinance its outstanding debt and shore up its financial profile. So, is the time ripe for investors to bet on this small cap?

What's the value?
Beazer is one of the country's 10 top homebuilders, based on volume, constructing roughly 5,000 homes annually across a geographical footprint of 16 states. While the company pursues buyers at a wide range of price points, it focuses on the entry-level segment with a company-wide average price for its home sales of approximately $253,000. 

Unlike some of its competitors, it attempts to reduce risk by only buying land that has received the necessary legal entitlements, thereby avoiding the costly and time-consuming zoning process.

In FY 2013, Beazer enjoyed solid top-line growth, up 28%, thanks to double-digit gains in both sales volumes and average prices. More importantly, the company kept a lid on its corporate overhead, providing a strong boost to its operating profitability. The net result has been a more favorable view of the company by creditors, in the form of lower funding rates, providing the capital to more than double its land purchases versus the prior-year period.

Best of breed
Of course, despite financial improvement in its overall operations, Beazer still suffers from a relatively leveraged balance sheet, with debt constituting roughly 80% of its capital structure. That is a competitive disadvantage in an industry that requires financial flexibility to make large land purchases years ahead of time in order to fund future growth. As such, investors should probably stick with financially prudent competitors that can pursue investment opportunities throughout the economic cycle.

In the mid-market segment, Meritage Homes (NYSE: MTH  ) is a top operator with a focused operating footprint of seven states, concentrating its business in high population growth meccas like California and Florida. While the company similarly pursues the full gamut of home purchasers, it focuses on the move-up category, reporting an average price for its home sales of approximately $329,700, significantly more than Beazer's average. 

Like Beazer, Meritage has also started getting more aggressive in the land-acquisition arena, recently agreeing to purchase Phillips Builders in order to cost effectively gain entry into the Nashville, Tenn., market.

Meritage has reported strong top-line growth in FY 2013, up 54.2%, courtesy of a favorable pricing environment and double-digit volume increases across its business units. The company has benefited from a large presence in technology havens, like California and the Carolinas, which has allowed it to leverage off of the tech industry's job growth.  The net result for Meritage has been sharply higher adjusted operating profitability in the current period.

In the luxury market, Toll Brothers (NYSE: TOL  ) has the pole position with an operating footprint of 19 states, providing a presence in most of the country's major metropolitan areas of affluence. The company serves the upscale market segment exclusively, adding an apartment development and management unit to its traditional homebuilding operations in 2003. Like its major competitors, Toll Brothers has been very active in the land-acquisition arena, recently agreeing to buy competitor Shapell Homes and its 5,200 lot positions in Northern and Southern California.

As one would expect, Toll Brothers has also reported strong financial results in FY 2013, reporting a 42% top-line gain. Despite an average sale price of roughly $717,000, the company generated a 27.3% increase in sales volume, indicating that consumers continue to gravitate to trophy properties. Of course, Toll Brothers is the direct beneficiary of that trend, with a sizable gain in operating profitability during the current period, providing the firepower to buy competitors and increase its community counts.

The bottom line
The Federal Reserve's excessively low interest rate policy has been a boon to the housing industry, propelling prices higher and improving the fortunes of nearly all participants, including Beazer. However, the company's relatively weak financial position should give investors pause and cause them to search for better opportunities elsewhere. 

The future of banking unveiled
The traditional bricks-and-mortar bank will soon go the way of the dodo bird -- into extinction, that is. This sounds crazy, but it's true. Every single one of the nation's biggest banks are dramatically reducing branch counts and overhauling the ones left behind. But despite these efforts, they're still far behind a single and comparatively tiny lender that's already leapt into the future. Since the beginning of 2012 alone, this company's shares are already up more than 250%. And they're bound to go higher. To download our free report revealing the identity of this stock, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2778148, ~/Articles/ArticleHandler.aspx, 9/26/2016 6:32:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:02 PM
BZH $11.51 Down -0.13 -1.12%
Beazer Homes USA CAPS Rating: **
MTH $33.74 Down -0.06 -0.18%
Meritage Homes CAPS Rating: *****
TOL $29.19 Down -0.03 -0.10%
Toll Brothers CAPS Rating: ***