UPDATE: Goldman Sachs Resumes Hovnanian at Sell on Expected Slower Growth

In a report published Monday, Goldman Sachs analyst Eli Hackel resumed coverage on Hovnanian HOV with a Sell rating and $5.50 price target.

In the report, Goldman Sachs noted, ““We resume coverage of Hovnanian with a Sell rating and 2% downside to our 12-month target price of $5.50 (vs. 9% upside for coverage). We expect the company to grow slower than peers during the recovery (orders growth of 14%/10% yoy during 2013/2014 vs. peers 25%/21% yoy). Hovnanian is one of the last homebuilders to break even (except Beazer), doing so during 2Q2013 versus others during 2012. The company has a negative book value (excluding its DTA which has yet to reverse) and high leverage (net debt to capital of 155%) – factors we expect to limit land acquisition to meet growing demand. Further, we do not expect the company to generate material free cash flow before 2016, which could potentially lead to earnings-dilutive equity raises or higher-interest debt raises. In our view Hovnanian has a large exposure to less-attractive housing markets (as per our MSA analysis), which may result in slower growth during the recovery. 41% of Hovnanian's communities are in DC, New York, Philadelphia, and Chicago – areas we expect to lag in terms of pricing and growth during the next 12 months. Hence, we expect Hovnanian to see lower margin expansion, limited by national level material and labor cost increases.”

Hovnanian closed on Friday at $5.88.