Shares of Hovnanian Enterprises, Inc. (HOV) recently hit a 52-week high as record low mortgage rates boosted demand for new homes. Early last month, this homebuilder reported strong third quarter results with a 64.3% earnings surprise and impressive year-over-year growth in new home orders.
With a recovering housing market, a year-to-date return of 185.8% and an attractive valuation, this Zacks #2 Rank (Buy) looks to be a solid momentum pick.
Q3 Beats
On September 6, Hovnanian reported an adjusted loss of 5 cents per share for the third quarter, narrower than the Zacks Consensus Estimate for a loss of 14 cents. The company had lost 47 cents in the prior-year quarter.
Net sales were up 35.5% year over year to $387 million, as the market for new homes is recovering gradually.
Gross margins expanded 290 basis points over the prior-year quarter to 18.2%, while selling, general and administrative expenses (SG&A) as a percentage of sales declined 390 basis points to 12.4%.
The demand for new homes led the company to invest $118 million in land and land development while increasing its cash balance to $252 million in the quarter.
Earnings Estimates Improving
The Zacks Consensus Estimate for 2012 has improved from a loss of 45 cents to a loss of 14 cents per share over the last 60 days. For 2013, the Zacks Consensus Estimate has improved from a loss of 28 cents to a loss of 18 cents per share over the same time frame.
Attractive Valuation
On a price-to-sales basis, Hovnanian trades at 0.44x, a 65.4% discount to the peer group average of 1.27x. The stock also looks attractive as it has a trailing 12-month return on equity (ROE) of 13.3%, which is above its peer group average of just 0.6%.
Chart Shows a Consistent Advance
Shares of Hovnanian have been rising since early August and reached a 52-week high of $4.70 on October 25. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $3.49 and $2.68, respectively. In fact, the stock has been consistently trading above those averages since late-August 2012.
Volume is strong, averaging roughly 6,751K daily. The year-to-date return for the stock is 185.8% compared with the S&P 500’s return of 12.3%.
Based in Red Bank, New Jersey, Hovnanian Enterprises, Inc. designs, constructs and markets houses for sale in 194 residential communities in 16 states. Hovnanian is one of the nation’s largest homebuilders and sells its products under the trade names of K. Hovnanian Homes, Matzel & Mumford, Brighton Homes, Parkwood Builders, Town & Country Homes and Oster Homes. The market cap of the company is $587.3 million.
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