What happened
Beazer Homes USA (BZH +1.81%) saw its share price plummet on Friday, as it was down about 10.1% as of 1:50 p.m. ET. The stock was trading at around $15.50 per share, up roughly 21% year to date in the same time frame.
The major indexes were down on Friday, as the S&P 500 was down 39 points (-0.9%), the Dow Jones Industrial Average was down 169 points (-0.5%), and the Nasdaq Composite was down 142 points (-1.2%).
So what
Beazer Homes, a homebuilder based in Atlanta, fell Friday after it released fourth-quarter earnings on Thursday, Feb. 2. The company beat earnings expectations but fell short of revenue projections in the quarter.
However, earnings were down about 30% year over year as net income fell to $24.3 million, or $0.81 per share. Revenue was down about 2% year over year to about $445 million, just shy of $456 million consensus estimates.
NYSE: BZH
Key Data Points
Rising mortgage rates, which shot to up to 20-year highs in October and November to over 7%, weighed on the sale of new homes. For Beazer, new-home orders fell 57.8% year over year to 482, with the decline driven by a decrease in sales pace to 1.3 orders per community per month from 3.3 orders a year ago.
Also, the cancellation rate for the quarter spiked to 37.1% in the quarter, up from 11.8% in the fourth quarter of 2021. This was the result of weakening housing demand due to elevated mortgage rates.
"The environment for new-home sales was extraordinarily challenging early in the first quarter, as 30-year mortgage rates moved above 7%, worsening an already difficult affordability equation for most homebuyers," Chairman and CEO Allan Merrill said.
Now what
Despite the headwinds, the company still managed to generate better-than-expected earnings due to home price increases and good expense management.
The good news is that the company may have gone through the worst of it, as Merrill noted that new orders started to accelerate toward the end of the quarter and into January as mortgage rates ticked down. As of Feb. 3, the average 30-year fixed mortgage was down to 6.19%, according to the Mortgage Bankers Association. They see that number dropping to 5.2% by the end of 2023.
It is hard to say Beazer Homes is completely out of the woods, but it is heading in the right direction, and the stock is dirt cheap at a 2.2 price-to-earnings ratio. It could be heading toward a favorable cycle.
