UBS Sees Price Target For Beazer Homes Somewhere In The Neighborhood Of $10

Beazer Homes USA, Inc.’s BZH F3Q indicated that the company was making progress towards its long-term goals of boosting top-line and generating margin expansion, along with deleveraging, UBS’s Susan Maklari said in a report. She maintained a Neutral rating on the company, while raising the price target from $8 to $10.

Analyst Susan Maklari mentioned that Beazer's F3Q results reflected:

• A modest increase in community count, along with benefits of easier comps
• Operational improvements and Beazer's “three-pronged strategy around product and mortgage financing” would likely enable the company to generate greater profitability, including gross margins back to more than 21 percent
• Improving demand, combined with a gradual rise in optioned lots, would help effective cash management, as the company “looks to balance growth with its targeted debt paydown” of $150mn in F2016 and +$250mn through F2018.

Maklari raised the EPS estimates for F2016 and F2017 from $0.75 to $0.90 and from $1.00 to $1.10, respectively.

Why The Neutral Rating?

The analyst expressed optimism in Beazer being able to drive improved results over the next few years, “as the current recovery in housing further unfolds.” She explained that the strategy was based on achieving volume growth and lowering costs, while “driving operating efficiencies and aggressively deleveraging its balance sheet.”

Maklari added, however, that the broader housing recovery was moderate in nature and Beazer's decision to focus on improved cash generation would likely keep the stock valuation below that of “better capitalized peers.”

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