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On Tuesday, Oppenheimer analyst Tyler Batory revised the price target for Beazer Homes (NYSE:BZH) to $33 from $37, while maintaining an Outperform rating on the stock. The company, currently trading at $19.49, shows signs of undervaluation according to InvestingPro analysis. Batory’s assessment followed a trend among homebuilders who have reported a slower start to the year, with most companies lowering their full-year closing guidance by an average of 6%. The analysis indicated that first-quarter sales adhered to expected seasonal patterns, albeit with slightly reduced velocity, reflecting in part the company’s -29% year-to-date stock performance.
Builders are currently prioritizing price over pace, increasing incentives to move excess speculative inventory and scaling back on new starts to protect margins. This strategy is reflected in a 10% year-over-year decrease in public builder starts for the first quarter and an 80 basis points quarter-over-quarter drop in gross margin on average. InvestingPro data shows Beazer’s current gross profit margin stands at 17.44%, indicating room for improvement. It is anticipated that Beazer Homes will adopt a similar approach to align with industry practices, particularly given its significant debt burden with a debt-to-equity ratio of 0.88.
In response to these market conditions, Oppenheimer has adjusted its model for Beazer Homes. Expectations for the company’s sales pace in the second quarter are below typical seasonality, with projections aligning more closely with the rest of the year. The firm has accordingly reduced its fiscal year 2025 closing estimate by 3% and anticipates a 10 basis points sequential dip in gross margin for the second quarter, despite guidance suggesting stability.
The expansion of community count remains a crucial element of Oppenheimer’s thesis for Beazer Homes. The firm expects Beazer to continue its double-digit growth in community count this year and next, providing a solid inventory foundation for future sales. This growth potential is supported by the company’s strong liquidity position, with a current ratio of 11.04 and revenue growth of 12.27% over the last twelve months. Beazer Homes also stands out with its READY series homes, which boast the highest energy efficiency standards in the industry. For deeper insights into Beazer’s financial health and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, featuring detailed analysis and key metrics.
The revised $33 price target is based on 9.5 times Oppenheimer’s next twelve months (NTM) earnings per share estimate and a 0.8 times price-to-book (P/B) ratio. Beazer Homes currently trades at a 0.66 times P/B ratio and a P/E ratio of 5.63, which represents a discount compared to the group average. This discount is considered unwarranted by Oppenheimer, given Beazer’s improved balance sheet and growth prospects relative to its historical performance, with the company maintaining profitability at $3.93 per diluted share over the last twelve months.
In other recent news, Beazer Homes USA Inc . reported its earnings for the first quarter of fiscal year 2025, revealing a significant miss in earnings per share (EPS) compared to analyst expectations. The company reported an EPS of $0.10, which was well below the forecasted $0.31. Despite this, the company slightly exceeded revenue expectations with $468.95 million against the anticipated $464.92 million. S&P Global revised Beazer Homes’ outlook to negative from stable, citing higher than expected leverage and declining EBITDA margins. The credit rating agency highlighted that the company’s debt to EBITDA ratio exceeded the 4x downgrade threshold, though the issuer credit rating remains at ’B+’. Beazer Homes has also increased its share repurchase program, purchasing approximately $4.1 million worth of shares since January 30, 2025. The company has adjusted its debt reduction forecast, expecting its net debt to net capitalization ratio to be in the low 30% range by the end of fiscal 2026. Additionally, Beazer Homes remains committed to expanding its community count and ensuring all new homes are Zero Energy Ready by the end of calendar 2025.
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