What have you done for me lately?
-- Janet Jackson
Investors can be a nasty bunch and have expectations that are even shorter-term than those of Ms. Jackson. For the most part, they're not as concerned with what's been done lately as they are with what will happen tomorrow.
On Thursday,
Beazer Homes(BZH Quote - Cramer on BZH - Stock Picks) reported strong fiscal second-quarter numbers. The homebuilder earned $2.35 per share on revenue of $1.27 billion, beating the consensus estimate of $2.27 and $1.17 billion.
But the stock was sold hard Thursday after Beazer said it experienced a 19% decline in new orders and lowered its full-year EPS guidance to $10-$10.50. The previous consensus was $10.48. If Beazer is able to deliver even the low end of that range, it would still represent 15% earnings growth over last year.
The good news was that the operating margin increased, the average sales price jumped nearly 10% and the average sales price in backlog was above $300,000 for the first time in the company's history. But those figures couldn't offset the decline in orders and the fears that earnings estimates have more room to drop. In recently trading, Beazer was down 3% to $57.23.
When it comes to Beazer and many of the other homebuilders, like
Centex (CTX Quote - Cramer on CTX - Stock Picks),
KB Home (KBH Quote - Cramer on KBH - Stock Picks) and
Ryland Group (RYL Quote - Cramer on RYL - Stock Picks), the important question is are investors more concerned with the P (price) or the E (earnings)?
TheStreet.com's Nicholas Yulico
wrote an excellent piece about homebuilder stocks possibly becoming value traps as earnings could be headed below expectations.
Brad Ruderman of Ruderman Capital Management, who was bullish on Beazer in my
original story on the firm, says the market doesn't believe the guidance that management provided. Homebuilders "are going to trade with a haircut until management can show consistency in their guidance," he says.
Investors will want to wait and see that management has a handle on its business before deciding how to value the company. When that occurs, Ruderman, who is long Beazer, expects prices to be higher. "I'm not suggesting that these companies deserve a premium," he says. "But history tells us that eight to 10 times earnings is probably a doable number."
Marc Lichtenfeld
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