Gold prices just lower; monthly gains on track
Investing.com -- S&P Global has revised Beazer Homes USA Inc (NYSE:BZH).'s outlook to negative from stable due to higher than expected leverage amid uncertain macroeconomic conditions. Despite this, the company's 'B+' issuer credit rating has been affirmed.
Over the past year, Beazer Homes' debt to EBITDA has exceeded the 4x downgrade threshold set by S&P Global, and EBITDA margins have declined to between 10% and 11%. The negative outlook is based on the expectation that the company's leverage will remain high over the next six to twelve months, despite recent growth in community count, increasing deliveries, and rising average selling prices.
The projection made by S&P Global Ratings suggests that the company's debt to EBITDA will be 4.0x at the end of 2025. This is due to continued pressure on margins which is offsetting recent improvements. The forecasted S&P Global Ratings-adjusted EBITDA for Beazer Homes is $260 million in 2025, which is lower than the previously expected $285 million. This decrease is primarily due to increased price concessions, closing cost incentives, and the timing of community count growth.
The forecast also indicates that the annual absorption rate of Beazer Homes will remain flat at 2.5 sales per community per month in 2025, down from the previously forecasted 2.9. This decreased sales pace is a result of affordability challenges due to a higher interest rate environment, timing of community count openings, and competition in key markets. Despite this, there is an expected increase of 10%-15% in communities over the next 12 months due to community count growth. This, along with a stable demand environment, is expected to lead to a 10%-15% growth in homes closed in 2025, with a 1%-3% growth in average selling prices.
Beazer Homes has recently improved its liquidity position by raising the amount of its senior unsecured revolving credit facility to $365 million from $300 million. This, along with its capital structure and staggered longer-dated maturities, is viewed as beneficial to its credit quality. The company's nearest maturity is in 2027, which gives it financial flexibility and no immediate need to refinance.
The negative outlook reflects the view that Beazer Homes' recent earnings leave little to no cushion against the downside scenario of debt to EBITDA well above 4x. The rating could be lowered if the company's operating ability deteriorates further over the next 12 months such that its debt to EBITDA remains above 4x. However, the outlook could be revised to stable if Beazer Homes' debt to EBITDA falls comfortably below 4x on a sustained basis and management commits to that leverage profile.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.