Beazer Homes USA, Inc. (BZH): If This Homebuilder Retests Recent Highs, You Could Reap 33% Returns

In early July, the minor downtrend line bullishly broke as shares moved from the $16.48 low to a $19.30 high in a week. They have since retreated, but are holding well above $16.48 support.

If shares can successfully re-challenge and penetrate the $20 resistance, they are likely to retest the $23.29 peak. At current levels, this represents nearly 30% potential returns. If the stock can break above this multi-year high, shares could foreseeably move much further ahead.

The bullish technical picture is supported by upbeat fundamentals.

For the upcoming third quarter, scheduled to be reported on Aug. 1, analysts project increased demand will cause revenue to surge 30.5% to $332.2 million compared to $254.6 million in the year-ago quarter.

For the full 2013 year, analysts expect increased home sales will cause revenue to increase 30% to $1.3 billion from $1 billion last year.

The earnings outlook is also optimistic.

Based on an expected increase in prices paid for sold homes, analysts expect earnings in the upcoming quarter will rise to -$0.37 per share from -$2 per share in the comparable year-earlier period.

Driven by increased demand and higher prices, analysts see the full-year 2013 earnings loss narrowing dramatically, to -$1.82 per share compared to -$5.43 per share in 2012.

Given the bullish technical and improving fundamental outlook, I plan to go long on the homebuilding stock.

Risks to consider: The improving economy is spurring the U.S. homebuilding market. However, if the economy slows, so will demand for new homes. Purchasers of the stock should monitor U.S. economic growth statistics closely with an eye on any incipient weakness.

Recommended Trade Setup:

— Buy BZH at the market price
— Set stop-loss at $14.92, slightly below support
— Set initial price target at $23.29 for a potential 33% gain

The article If This Homebuilder Retests Recent Highs, You Could Reap 33% Returns originally appeared on ProfitableTrading and is written by Melvin Pasternak.

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