Macro Tsimmis

intelligently hedged investment

Beazer Homes (BZH) update #12

Posted by intelledgement on Sun, 28 Sep 08

Given the current financial tsunami, you have to work really hard to find any good news for a homebuilder. But Beazer Homes (BZH)—shares of which we have sold short in the expectation that the company is in for extremely tough times and may not survive—generated a genuine candle in the dark this week with the announcement that they have reached a settlement with the SEC. BZH were being investigated for possible fraud, internal control failures, and reporting violations, but under the settlement announced Wednesday, the company “consented, without admitting or denying any wrongdoing, to a cease and desist order requiring future compliance with certain provisions of the federal securities laws and regulations. The settlement does not require the Company to pay a monetary penalty and concludes the SEC’s investigation into these matters with respect to the Company. In the order, the SEC stated that in determining to accept the settlement, it considered both remediation efforts undertaken by and cooperation from the Company,” according to the press release.

We still think Beazer’s prospects are dicey here—aside from the terrible underlying business climate, they still face an ongoing DOJ criminal investigation relating to the way they treated their customers prior to 2007—but kudos to the new management team for working hard to clean up the mess and committing to do business on an ethical basis going forward. While we believe BZH stock is still overvalued here at $6.18—up 5% since this settlement was announced—if the company does survive, shareholders will have their new management to thank.

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