When Beazer Homes (BZH) reported earnings this morning, the dramatic rise of homebuilders’ share prices came to a screeching halt. Beazer earnings and related BZH stock news is weighing on the entire homebuilding industry today. Beazer is down about 15%, Pulte Group (PHM) is down nearly 5%, Lennar Corp. (LEN) is down about the same amount, and Toll Brothers, Inc. (TOL) is down more than 5%. The SPDR S&P Homebuilders ETF (XHB) is also down about 4%.
It’s not that BZH earnings results were bad, it was a combination of a weak outlook and the announcement that the company would issue new shares and debt.
A good portion of the drag on homebuilders’ shares is the expiration of the federal tax credit for home buyers. The credit expired on April 30th, and even though it has given the market a boost, there is still a good deal of uncertainty over whether or not the industry can make a profit without the credit.
The National Association of Realtors also reported today that pending home sales for March grew by a seasonally adjusted 5.3% sequentially and 21.1% year-over-year. However the group’s chief economist noted, “In the months immediately following the expiration of the tax credit we expect measurably lower sales…We need a second surge to meaningfully draw down inventory and definitively stabilize home values.”
Beazer’s president/CEO said that it’s not a “foregone conclusion” that sales would be weaker following the end of the tax credit, though the company is “planning for a softer second half of the year, but hoping for something better.” That does not inspire confidence.
What really hammered BZH stock today wasn’t Beazer earnings, it was its announcement that it would issue 12.5 million new shares, 3 million tangible equity shares, and $300 million in senior unsecured notes. The tangible equity shares include a prepaid BZH stock purchase contract and a senior amortizing note due in 2013. The company plans to use the proceeds to retire debt, including $303.6 million worth of senior notes due in 2012 and $154.5 million in senior convertible notes due in 2024. The dilutive effect of the stock and tangible equity shares have just pounded the company’s shares today.
An analyst at Deutsche Bank Securities has said that homebuilders’ stocks have priced in a figure of 1.6 million new housing starts for 2010, nearly triple the existing rate of 600,000 new starts. He notes that this figure is “highly optimistic.” That just about says it all.
- Rethinking Homebuilders Stocks (KBH, PHM, MDC, XHB)
- Home Builders Weaker Than They Look (XHB, KBH, LEN, TOL)
- KB Home’s Year-End Report a Wake-Up Call for Homebuilders (KBH, LEN, TOL, BZH)
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