Wedbush upgraded shares of Beazer Homes USA, Inc. BZH 3.33%, citing its belief that homebuilders will benefit from the loosening of credit standards at Federal National Mortgage Association FNMA 1.74%.
Analyst Jay McCaniess also believes Beazer Homes will benefit from its focus on entry-level consumers, who benefit the most from lower lending standards. The analyst noted Beazer’s entry-level focus is the second highest in his homebuilder coverage, lagging behind only LGI Homes Inc LGIH 1.18%.
Low Lending Standards To Help
With expectations that the Fannie’s debt to income requirement will be relaxed to a 50-percent cap from 45 percent, the analyst believes demand would be spurred, given that first-time homebuyers bring more debt and less equity.
Falling Mortgage Rates A Catalyst
Additionally, Wedbush sees the low mortgage rates as a potential catalyst for Beazer Homes. The firm noted that the national 30-year mortgage rates have fallen to about 4 percent after the post-election spike.
Thus far in 2017, the firm noted that the company has played out to its expectations laid out in December 2016 that 2017 would be a rebuilding year for the community count, with reduced emphasis on debt reduction.
Specifically, the firm expects net community growth of 4.1 percent year-over-year in 2018 versus a flat comp in 2017. The firm also believes the company’s recent emphasis on more speculative homes per community should help a 7-percent growth in orders in 2018 compared to its estimate for 2.5-percent comps in 2017.
As such, Wedbush upgraded shares of Beazer Homes to Outperform from Neutral, while it maintains its price target at $15.
At last check, shares of Beazer were up 3.9 percent at $12.79.