Can Hovnanian Keep Building On Its Turnaround?
On Wednesday, Hovnanian will release its latest quarterly results. With the housing market finally looking like it has hit bottom and is recovering at an accelerating pace, the entire homebuilding industry has been one of the most lucrative investment areas in the entire stock market over the past year.
For Hovnanian, the gains have been especially large, given how much the company got beaten down during the housing bust and the financial crisis. Still, shareholders have gotten burned before from false starts in the housing market, so some investors are still nervous about whether the company could end up giving back some of its gains. Let's take an early look at what's been happening with Hovnanian over the past quarter and what we're likely to see in its quarterly report.
Stats on Hovnanian
Analyst EPS Estimate
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Why won't Hovnanian make money this quarter?
In recent months, analysts have actually boosted their views on Hovnanian's earnings somewhat, narrowing their loss estimates for the April quarter by a penny per share and raising their full-year fiscal 2013 estimates by $0.08 per share. Yet after climbing so far last year, the stock has been largely flat, with a gain of just 1% since late February.
Part of the trepidation that shareholders have felt about Hovnanian comes simply from how far the stock climbed in 2012. Even when the company announced better-than-expected results back in March and predicted that Hovnanian would earn a profit this year, investors took the opportunity to sell the stock.
Yet industry CEOs remain convinced that the recovery is for real. KB Home's Jeffrey Mezger said recently that he sees the recovery as being only in its early stages, while PulteGroup CEO Richard Dugas pointed to strength on the East Coast, in the middle third of the country, and in Phoenix, with Pulte actually slowing its sales rate down in order to try to focus on the highest-margin business available. For Hovnanian's part, CEO Ara Hovnanian pointed to year-over-year gains in every one of the past 12 months as evidence of the strength of the recovery.
Still, Hovnanian won't necessarily have clear sailing ahead. One possible disadvantage that both Hovnanian and KB Home face is that their focus on lower price-points in some markets could cause problems because of negative trends affecting first-time homebuyers. High levels of student debt have kept some buyers out of the market, and now that mortgage rates are starting to rise, some marginal buyers might find themselves unable to get financing.
In Hovnanian's report, watch for the company to detail how it plans to take maximum advantage of the recent increases in home prices over the past year. By watching where Hovnanian plans to focus its efforts, you should be able to get a sense of where the best housing prospects are nationwide.
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The article Can Hovnanian Keep Building On Its Turnaround? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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