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Hovnanian Earnings: An Early Look

Monday - 3/4/2013, 4:29pm  ET

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Hovnanian is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction that turns out to be exactly the wrong response to the news.

Hovnanian has been one of the biggest beneficiaries of the rebound in the housing market over the past year. But increasingly, investors are worried that the stock might be getting ahead of itself. 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 on Wednesday.

Stats on Hovnanian

Analyst EPS Estimate

($0.10)

Year-Ago EPS

($0.17)

Revenue Estimate

$381 million

Change From Year-Ago Revenue

41%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Hovnanian build more success this quarter?
Analysts have gotten increasingly optimistic about prospects for Hovnanian over the past few months. They've raised their estimates for the just-ended quarter by a few cents per share, but more importantly, they've reversed their calls for a 2013 fiscal-year loss, now projecting a small profit. In response, shareholders have bid up the stock by another 15% since early December after a huge run during 2012.

Hovnanian's strong performance may seem counterintuitive, given that it's a far smaller player in the industry than most of its peers. But looking at the much-larger PulteGroup and Toll Brothers , both of those companies posted much less precipitous losses during the initial part of the housing bust. As a result, they had less ground to make up when conditions began to improve.

Despite some past false starts, economists seem to believe that this time, the housing recovery is real. Positive data on new and existing home sales have helped send prices higher on a year-over-year basis for the first time in years, and low interest rates continue to support mortgage activity. In particular, with Hovnanian and Standard Pacific focusing on entry-level homebuyers, they took a bigger hit from the recession than their luxury peers, and they've seen particularly encouraging growth in orders and sales activity.

In its quarterly report, watch for Hovnanian to give its guidance on how it plans to take advantage of new-home sales at a nearly five-year high and a roughly 7% gain in home prices. If Hovnanian can return to profitability this year, it'll mark an important milestone for the homebuilder and a foundation on which to build for its future. 

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This article was originally published as Hovnanian Earnings: An Early Lookon Fool.com

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