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Hovnanian Enterprises Inc. (HOV) Benefiting From Housing Recovery And Post-Sandy Rebuild

 November 12, 2012 12:57 PM

(By Rich Bieglmeier) It's becoming a nearly unanimous consensus, housing has managed to get off its back, is on its hands and knees, and showing sign of standing upright, one again. At the 2012 Realtors Conference and Expo, chief economist of the National Association of Realtors, Lawrence Yun told attendees, "Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases."

Wells Fargo analyst, Mark Vitner shared his thoughts with the Orlando, Florida audience, "Housing will strengthen in 2013 even if the economy weakens because there is a demand for more construction, and the demand for apartments is rising at a faster rate than the need for more single-family homes."

[Related -Hovnanian Enterprises, Inc. (HOV) Q2 Earnings Preview: What To Watch?]

Vinter's sentiments appear to be confirmed by the National Association of Home Builders. They reported that the Housing Market Index (HMI) reached its highest score in the past four years, confirming a market recovery. Adding momentum to the things getting better story line, FindLaw.com says a significant number of middle and upper-income earners could be ready to move off the sidelines and into the recovering housing market.

Hovnanian Enterprises Inc. (HOV) could be one of the beneficiaries of the housing recovery, and, perhaps, post-Sandy rebuilding efforts. Located in Red Bank, New Jersey, Hovnanian designs, constructs, markets, and sells residential homes. The company is one of the nation's largest homebuilders and operates in some of the hardest hit Sandy areas of New Jersey, Delaware, Pennsylvania, and Virginia, along with Arizona, California, Florida, Georgia, Illinois, Maryland, Minnesota, North Carolina, Ohio, South Carolina, Texas, Washington, D.C. and West Virginia.

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Last Friday, the homebuilder announced, "despite the impact of Hurricane Sandy, the Company still expects to report strong year over year improvements for most metrics during its fourth quarter. In fact, the Company anticipates that its fourth quarter revenues should meet or exceed current First Call revenue estimates of $461.1 million and could have reported even higher revenues had the hurricane not occurred."

The combination of company-specific news, the housing sector gaining strength, and the forthcoming rebuilding effort in New Jersey and surrounding areas led to investors accumulating more than $11 million, or 1.7% of HOV's market-cap last week.

Money pouring in helped Hovnanian set an intra-day, 52-week high of $5.80 on November 8, 2012.  Big volume has been pumping into the stock since September. While the stock has taken a bit off the top in the last couple of days, the buildup of interest should bode well for continued price strength.

For 2013, analysts expect HOV sales to climb 23% while profits fall from 2012's estimate of 8 cents per share in earnings to a loss of 18 cents. While short-term momentum and current events could boost Hovnanian's price in the days/weeks ahead, iStock worries about some of the company's fundamentals. It currently trades at its highest price-to-book value, and with a PEG Ratio of 13.50, both are too high in our view.

On the plus side, HOV is valued for 51 cents for every dollar per share in revenue. Meanwhile, the average homebuilder trades for $1.21. Additionally, 43.40% of Hovnanian's float is sold short. If the company continues to benefit from the housing recovery and the east-coast rebuilding effort, then a short-squeeze could ignite.

Overall, Hovnanian Enterprises Inc. (HOV) has a number of catalysts working in its favor. Investors looking to take part in post-Sandy construction, improving housing conditions and potential short-squeeze rocket ride might consider HOV.


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