Lennar Saves Beazer, But Sets High Mark Tone (BZH, LEN, XHB, ITB, KBH)

Beazer Homes USA Inc. (NYSE: BZH) was weak earlier because of its proposed secondary offering that will add to dilution of shareholders.  This morning the company’s secondary offering of 19,500,000 shares of its common stock at $4.60 per share.  It also priced its $50 million in mandatory convertible subordinated notes.  Beazer shares closed at $4.77 yesterday and had been up at $5.40 before the company disclosed the offering.  But then came Lennar Corp. (NYSE: LEN) showing a surprise positive earnings report this morning, and that has changed everything.  This is having a broad implication in the SPDR S&P Homebuilders (NYSE: XHB) ETF, but hardly impacting the thinner-volume iShares Dow Jones US Home Construction (NYSE: ITB) ETF.

Lennar (LEN) is trading up this after a surprise earnings beat, but more importantly it posted a profit for the first time since 2007.  The home builder posted $0.19 EPS on income of $35.6 million rather than a loss expected from Thomson Reuters.  This figure does include a tax benefit, making this hard to use as a comparable figure when you look at the notion that revenue fell 28% to $913.7 million vs. estimates of $863 million.  Still, orders rose 3% for the first gain in years and the cancellation rates fell to 20% from 32%. The builder also ended the quarter with close to $1.3 billion in cash.

Lennar is trading up 10% at $15.08.  Beazer Homes is perhaps as good of a secondary offering as one could hope for because shares are up 8.6% at $5.18 and trading volume is already 7-times a full day’s volume.  The Jan 6: 15.51  0.00 (0.00%)  SPDR S&P Homebuilders (XHB) and the iShares Dow Jones US Home Construction (ITB) is flat at $12.26 were both up almost 4%, but those may be higher as we have seen trade errors in reporting this morning right after the open.

Beazer secondary buyers should be sending Lennar a thank you note this morning. KB Home (NYSE: KBH) shares are trading higher by 6% at $15.25 this morning and they have earnings (with an expected loss) on deck next week on January 12.  The bar has now gone from a low bar to a very high bar for KB Home’s earnings next week.

JON C. OGG