Hovnanian Enterprises (NYSE: HOV) is
a major U.S. homebuilder. The firm designs and constructs single-family detached homes, attached townhomes and condominiums, mid-rise and high-rise condominiums, urban infill, and active adult homes. It targets first-time buyers, move-up buyers, luxury buyers, active adult buyers, and empty nesters. The company operates in 19 states, primarily along the East Coast and in the Midwest, California, and Texas. Hovnanian also offers mortgage financing and title services.
Investors were relieved last month, when the company reported a Q1 loss of $2.07 per share and revenues of $1.09 billion. On average, the Street had been looking for a loss of $1.96 per share and revenues of $911.4 million. Management admitted that the housing market remains challenging, but it continued to project positive cash flow from operations in excess of $100 million for FY08. Fitch Ratings subsequently upgraded its view of the homebuilder's revolving credit facility, saying the recovery prospects were "outstanding." The change to "BB-/RR1" from "B-/RR4" came, after Hovnanian reduced its credit facility from $1.2 billion to $900 million.
The news
kept HOV shares cycling up through what has become a positive six-week trading channel. Recent Fed actions to reduce the credit crunch, agreement among top Senate leaders to devise a plan that can effectively address the foreclosure issue and signs that the economic downturn may be approaching stabilization have all helped keep HOV shares moving up in that channel.
Brokers recommend the issue with six "holds" and three "underperforms". Analysts see a 71% growth rate, through the next year. The HOV Price to Sales ratio (0.14), Price to Book ratio (0.63), Price to Free Cash Flow ratio (3.43) and Revenue per Employee ($1.09M) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 89% of the outstanding shares. The stock is one of those used to calculate the S&P 400 Mid-Cap Index. Over the past 52 weeks, it has traded between $4.25 and $27.04. A stop-loss of $10.25 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold a position in the stock discussed above.
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