BZH - Valens Credit Report - 2020 06 03
Credit markets are grossly understating credit risk with a cash bond YTW of 6.348% and a CDS of 373bps, relative to an Intrinsic YTW of 9.608% and an Intrinsic CDS of 926bpsFundamental analysis highlights that the combination of BZH's cash flows and cash on hand would fall short of servicing all obligations as soon as 2022, when the firm faces a material $400mn debt headwall. Moreover, the firm's moderate 70% recovery rate on unsecured debt and limit market capitalization may make it difficult for the firm to access credit markets at favorable rates
Earnings Call Forensicsâ„¢ analysis of the firm's Q2 2020 earnings call (4/30) highlights that management may be concerned about their speculative building position and the impact of the pandemic on home closures and homebuilding. In addition, they may be exaggerating the strength of their first-time buyer business and their ability to improve potential homebuyers' access to credit
Beazer Homes USA is engaged as a homebuilder. The company's homebuilding operations consist of the design, sale, and construction of single-family and multi-family homes. The company purchases land or obtains an option to purchase land, which, in either case, requires certain site improvements prior to home construction. When available in certain markets, the company also buys finished lots that are ready for home construction. The company has investments with land developers, other homebuilders and financial partners to acquire land positions, to manage its risk profile and to utilize its capital base. The company also acts as the general contractor for the construction of its new home communities.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
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- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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