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Here's one for the Old Economy: Shares of homebuilders, once shunned by the Street as an anemic part of the boring 20th century, have been snapping back. The group "has emerged as one of the hottest sectors since the spring," notes John Stanley, housing analyst at UBS Warburg. Falling interest rates and a massive investor bailout from New Economy mainstays, including the once-torrid technology sector, have made homebuilders look like havens during the market's volatility. Analysts point out that the average 30-year fixed-rate mortgage has eased from 8.6% in May to 7.9% in September.
One homebuilder that some pros believe is an outstanding play in the group is Beazer Homes USA (
BZH
), one of the nation's 10 largest single-family homebuilders. Despite the surge in housing shares, Beazer is still incredibly cheap -- based on a number of metrics -- when compared to its peers, say some analysts. Beazer is "the most inexpensive building equity in our universe from both a price-to-book and price-to-earnings perspective," says Gregory A. Nejmeh of Donaldson, Lufkin & Jenrette.
CHECKING THE BOOKS. That's probably why some money managers who have been scooping up its shares are betting that Beazer is buyout-bound. They say the current consolidation in the industry has a ways to go. They note that retirement homebuilder Del Webb has, so far, received three buyout proposals -- from Avatar Holdings, Pacific Partners, and J.F. Shea Co., a private homebuilder in California.
Beazer has been approached by several publicly traded homebuilders, according to some money managers who are familiar with the situation. The interested companies, they say, include Centex Corp. (
CTX
), which operates in 19 states and is ranked as one the largest U.S. homebuilders; Kaufman & Broad Home (
KBH
), the largest U..S. homebuilder; and Pulte Homes (
PHM
), which builds moderately priced single-family homes and condominiums. Industry sources say the three have looked at Beazer's books. These pros figure that in a buyout, Beazer is worth 35 to 40 a share.
Beazer, which operates mainly in the Southeast, Southwest, and mid-Atlantic states, focuses on entry-level single-family homes and on "first move-up" home buyers. Currently trading at 26 a share, Beazer is now below its estimated book value of 30 to 35 a share.
EYE ON THE NET. And it's selling at less than 3.8 times its estimated 2001 earnings of $5.25 a share. The average p-e multiple of shares in the homebuilders group is at least 6 times. Beazer's market cap of $223.5 million is also below average for the group. Donaldson's Nejmeh, who rates the stock a buy, expects Beazer to earn $4.80 a share in 2000 and $5.25 in 2001, up from last year's $4.15.
Also rated as a big positive by analysts is Beazer's major effort in adapting its operations to e-commerce and the Internet. Evidently, they say, Beazer has been busy building value for the sake of its own future as a major independent homebuilder -- or as a buyout candidate.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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