The Week in Stocks: Beazer Warns Amid Nasty Housing Downturn
Plus, airline outlook falls on crude, Ford nabs a new CEO, and more.
Beazer Homes (BZH) announced that sales decelerated significantly during the first two months of its fiscal fourth quarter. Based upon the extremely weak environment, management reduced its earnings forecast for this year by more than one dollar per share and now estimates that the company will deliver somewhere between 12,000 and 13,500 homes in fiscal 2007. Morningstar analyst Eric Landry was particularly struck by management's comments indicating that a higher percentage of home closings are being postponed or canceled altogether. In Landry's opinion, this means that the backlog that appeared semi-solid earlier this year is evaporating, and houses thought sold two months ago are now back on the market, extending the supply glut. Thus, Landry is reducing his fair value estimate for Beazer to account for a more drastic housing slowdown over the next two years.
Full Analyst Report: Beazer Homes USA
Airline Outlook Falls on Crude
Morningstar analysts Marisa Thompson and Brian Nelson lowered their fair value estimates for several airlines to incorporate our energy team's higher oil price assumptions. Our energy team believes that current stratospheric oil prices are unsustainable, but it has raised its midcycle oil price assumption by about 18%. Though airlines have had some success lately passing along higher fuel costs, Thompson and Nelson think that many customers are price sensitive and would reconsider their travel plans if 5%-10% annual price increases became commonplace. As a result, Thompson and Nelson think that ticket prices will increase at a slower pace going forward, meaning that they'll be insufficient to fully offset the higher crude prices that we expect.
Full Analyst Report: Air Tran
Full Analyst Report: Alaska Air
Full Analyst Report: Gol Intelligent Airlines
Full Analyst Report: JetBlue
Full Analyst Report: LAN Chile
Full Analyst Report: Southwest Airlines
Ford Nabs a New CEO from Boeing
Ford Motor (F) announced Tuesday that Allan Mullaly, a senior Boeing (BA) executive with extensive manufacturing and turnaround expertise, will replace Bill Ford as president and CEO. Though the timing of the announcement came as a surprise, Morningstar analyst John Novak sees the hiring as a positive step that could jump-start the automaker's flagging restructuring efforts. Nevertheless, he's leaving his fair value estimate unchanged in view of the daunting challenge that Mullaly will face in trying to stem market-share losses and cut costs in a brutally competitive global auto industry. Similarly, Morningstar analyst Chris Lozier has a sanguine take on Mullaly's departure from Boeing, which he views as a loss to the company, but one that wasn't entirely unexpected. Further, Lozier believes that Mullaly's replacement, Scott Carson, should acquit himself well in his new role considering his long tenure at Boeing (he's a 34-year veteran) and diverse background (he's held a variety of leadership posts, spanning operations, finance, and sales). Accordingly, Lozier is maintaining his fair value estimate.
Full Analyst Report: Ford Motor
Full Analyst Report: Boeing
Eventful Month for EchoStar, DirecTV
Morningstar analyst Michael Hodel provides a roundup of recent events affecting satellite television operators EchoStar (DISH) and DirecTV (DTV). EchoStar settled a dispute with affiliates of broadcasters ABC, NBC, CBS, and Fox, concerning the broadcast of local programming to its subscribers. Though the settlement doesn't put all outstanding legal issues to bed (the company has also locked horns with Tivo (TIVO) over patent infringement claims), Hodel thinks it's unlikely that the issues will prove disruptive to EchoStar's customer base or that the firm will be forced to pay an unreasonable amount. In addition, Hodel observes that EchoStar and DirecTV's recent unsuccessful joint bid for several blocks of wireless spectrum could be a blessing in disguise. Though it thwarts the companies' efforts to offer service bundles including high-speed Internet access, management showed admirable restraint in bidding. Further, Hodel continues to believe that even without high-speed Internet services, the companies' television services fill a sizable niche created by the cable and phone companies' neglect of a large portion of the U.S. Consequently, Hodel is leaving his fair value estimate for both companies unchanged.
Full Analyst Report: DirecTV
Full Analyst Report: EchoStar
Jeffrey Ptak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.