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Bear of the Day: Hovnanian (HOV) - Bear of the Day

Hovnanian Enterprises, Inc. ( HOV ) continues to struggle despite near record housing prices and strong demand for new homes. This Zacks Rank #5 (Strong Sell) has missed on the Zacks Consensus two quarters in a row.

However, in June, the company still firmly believed that the United States was in the early stages of the housing recovery.

Hovnanian is one of the largest homebuilders in the United States with operations in 16 states and Washington, DC. It builds in some of the largest markets including California, Texas, New Jersey, Ohio and Illinois.

Its homes are sold under the names Hovnanian, Brighton Homes, Parkwood Builders, Town & Country Homes and Oster Homes. It also builds active adult homes through its Four Seasons communities.

Earnings Miss in the Fiscal Second Quarter

On June 4, Hovnanian reported its fiscal second quarter results and missed on the Zacks Consensus for the second quarter in a row.

The company took a loss of $0.04 compared to the consensus which was looking for $0.01. The loss was mostly due to expenses, which rose 7.5% in the quarter.

Revenue rose 6.4% to $449.9 million from $423 million a year ago as average sales price rose.

In March, to boost sales after a slow winter season, it ran a national sales campaign called "Big Deal Days" which resulted in 728 net contracts signed, the largest monthly net contracts since April 2008.

But sales in April and May were choppy and were under a year ago levels.

2014 and 2015 Estimates Fall

While Hovnanian still expects to be profitable for the year as it sees the second half of the year being stronger than the first half, fiscal 2014 will under perform compared to 2013.

After the weak second quarter, analysts cut estimates for both 2014 and 2015. The 2014 Zacks Consensus Estimate has fallen to $0.08 from $0.19 just 90 days ago.

That is an earnings decline of 48.9% from 2013 as the company made $0.15 last year.

While analysts see a rebound in fiscal 2015, there was still 1 estimate cut for the year in the last 60 days and those estimates are falling as well. The Zacks Consensus for 2015 has dropped to $0.39 from $0.48 just 3 months ago.

Shares at a 52-Week Low

With uncertainty surrounding the housing market and estimates falling, shares have sunk to a 52-week low.

But with lower earnings estimates, the stock isn't any cheaper. It is still trading with a sky-high valuation as its forward P/E is 55.

Hovnanian is expected to report third quarter results in early September.

If you're interested in the homebuilders, and are willing to ride out the rocky housing recovery, you might want to consider Lennar Corporation ( LEN ) instead. It is trading with a forward P/E of just 14.3 and is expected to grow earnings by 32.8% in 2014.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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