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Beazer Homes Seen Profiting As It Exits Rentals

Beazer Homes (BZH) stock moved lower in early trading in the stock market today on an analyst downgrade, though the same analyst also raised his earnings estimates on the homebuilder.

In a note published Wednesday morning, Sterne Agee analyst Jay McCanless downgraded Beazer to neutral from buy, saying the company's shares "are within 5% of our unchanged $22 price target.

Beazer's stock price fell 2% to 20.72 in early trading Wednesday.

McCanless also raised his GAAP earnings estimates on Beazer to 12 cents a share for fiscal 2014, which ends in September. That's up from his prior estimate of 10 cents.

The revision was based on the Tuesday sale of Beazer's Pre-Owned Rental Homes unit to American Homes 4 Rent (AMH) for about $263 million in stock, cash and debt. American Homes 4 Rent is a real estate investment trust that buys, renovates, leases and operates single-family homes.

"We estimate Beazer's cost basis in the rental venture was approximately $20 million, and the asset sale should not affect our estimates of Beazer's core homebuilding business," McCanless noted.

For fiscal 2015, McCanless raised his GAAP EPS estimate on Beazer to $14.11 from $13.97 to reflect a 5% income tax provision in the first three quarters of fiscal 2015.

Beazer shares are down about 18% from their 2014 high of 25.34, established in early January. The company has an IBD Composite Rating of 41 out of a possible 99. It is part of IBD's Building-Residential/Commercial group, which ranks No. 99 of 197 industries tracked.

Leaders in the group are Lennar (LEN) and LGI Homes (LGIH), both of which have Composite Ratings of 94.