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$BZH Beazer Homes Why Buy a Home When You Can Buy the Builder below its Cost

Our ten point analysis on Beazer Homes

Ticker: BZH

Chart- Beazer home stock is continuing to go down. The 52-week high price was at 23.24 and the 52-week low has been at 12.19. The average volume (10-day trade) is around 228.45K with shares outstanding being 32.18M

Score: 0

Analyst- There are about 6 analyst that cover Beazer Homes. About 3 are saying to hold, 1 says sell, and 2 says it is underperforming. Until we start to see a consistent stock price and at least a couple of analysis say buy, I would hold.

Score: 0

Insiders- Last February, the Chairman of the Board pbout $469.6k of stock at an average price of $15.65. A director, Shepard, bought $99.7k at $16.14.  Since then there has been no buying but more importantly, there has been no selling either.

Score: 1

Management Discussion/ 10Q & 10K- In Beazer Homes 10 K, there are some things I want to go over that I found interesting and want to share.

Risks- There are some rising concerns with land values underlying land option agreements and overhead cost structure. Macro-economic and other outside factors can cause operating revenues to decline. Beazer Homes has a lot of competition which can result in market shares going down. They are exposed to fluctuating interest rates but want to hedge against the risk associated with fluctuating interest rates. Although they have a plan to do so, they have not had any derivative agreements.

Litigation- There was a case from BMC (Beazer Mortgage Corporation) demanding damages or indemnity or that they repurchase such mortgages. They have been able to resolve these claims and there are no more outstanding claims.

Related Transaction Sections- None of the members of our Compensation Committee had any relationship requiring disclosure under “Transactions with Related Persons.” During fiscal year 2017, none of our executive officers served as a director or member of the compensation committee (or other committee of the board of directors performing equivalent functions) of another entity that had an executive officer serving on our Board of Directors.

Management discussion/Earnings- Beazer Homes has acquired a company called Venture in hopes of continued growth. There were some concerns about their margin revenue growth falling from 3.4% to 3.1% but they explained although it fell, it is exactly where it is supposed to be.

Score: 1

Relative Performance- Beazer homes is down 28.14% in the last 13 weeks It has continued to drop over the past year.

Score: -1

Cash Flow-

 

We took a deeper look into the company’s 10-K and came up with an intrinsic value of $50.21. This valuation is based off the fact that the growth rate continues to stay at 9% and the interest rates stay the same since last quarter.  With Net Operating Profit Margin, we took the last 5-year Operating Margin which was 3.44%. Although tax rates for companies are 20%, there are some other conditions causing Beazer tax rate to be at 24%. The stock price and shares outstanding were pulled directly from the 10-K. With this analysis the company is undervalued and would be a great company to investigate.

Although we discussed a look at the company being undervalued, here is a look at the intrinsic value if interest rates were to rise and growth was cut in half. We cut the growth rate from 9% to 4% just in case the market took a turn for the worst. We also cut Net Operating Profit Margin in half just to show what could happen in a worst-case scenario. As you can see, if these things were to happen Beazer Homes, it would be considered overvalued.

Score: 1

PEG Ratio: The PEG Ratio for Beazer Homes turned out to be around 1.13%. This is a pretty good PEG Ratio because it is over 1%

Score: 1

Valuation: Beazer Homes has lost more than 60% of its value and is now a good rebound candidate. The stock has been flat, but I feel it will go down more before it starts its rally.

Score: 0

Catalyst: This past earnings call, they told us about how they have merged with a company out of Atlanta and is positive it will drive growth. This company is called Venture Homes who is one of the biggest private builders in Atlanta. Venture Homes had a sales pace of 1.7 homes per community a month and it has growth of 3.1. They are excited about what is to come with this merge but keep in mind that interest rates could rise causing little to no growth.

Score: 1

 

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