Market Overview

Hovnanian Posts A Q4 Beat, But Is The Resulting Upside Overdone?

Share:
Hovnanian Posts A Q4 Beat, But Is The Resulting Upside Overdone?
Related HOV
Benzinga's Top Upgrades, Downgrades For October 9, 2018
5 Stocks To Watch For September 10, 2018

Homebuilder Hovnanian Enterprises, Inc. (NYSE: HOV) reported a top- and bottom-line beat in its fourth-quarter results Thursday, sending shares higher by more than 10 percent.  

The Analyst

MKM Partners' Megan McGrath downgraded Hovnanian's stock rating from Neutral to Sell with an unchanged $1.75 price target.

The Thesis

Shares of Hovnanian gained 12 percent Thursday in reaction to its earnings report, but the stock is now trading at 1.6x current book value, McGrath said in the downgrade report. (See the analyst's track record here.) 

This valuation is expensive when looking out to 2018, hich is a "typical valuation methodology" for the sector, McGrath said. Hovnanian will likely see continued revenue declines in 2018 coupled with increasing cost headwinds, meaning any sustained improvements may be "further off than the share price is implying," the analyst said. 

At Thursday's closing price of $2.96, the stock would be trading at 1.2x book value, but recent tax legislation could prompt the company to take at least a "mild impairment" to its deferred tax assets, according to MKM Partners. Assuming a 10-percent reduction in the company's DTA, its valuation would imply the stock is trading at 1.5x book value — "overdone for a company not yet profitable on an annual basis," McGrath said. 

The analyst's $1.75 price target is based on what she said is a more appropriate 1x multiple on the one-year forward book value.

Price Action

Shares of Hovnanian were trading lower by 4.35 percent at $2.86 at the time of publication. 

Related Links:

Benzinga's Top Upgrades, Downgrades For December 22, 2017

Mid-Morning Market Update: Markets Edge Lower; Nike Beats Q2 Views

Latest Ratings for HOV

DateFirmActionFromTo
Oct 2018JMP SecuritiesUpgradesMarket UnderperformMarket Perform
Dec 2017MKM PartnersDowngradesNeutralSell
Jan 2017JMP SecuritiesDowngradesMarket PerformMarket Underperform

View More Analyst Ratings for HOV
View the Latest Analyst Ratings

Posted-In: homebuilders Meagan McGrath MKM PartnersAnalyst Color Downgrades Price Target Analyst Ratings Real Estate Best of Benzinga

 

Related Articles (HOV)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
DLTRBernsteinUpgrades0.0
CNPUBSUpgrades34.0
UGIUBSDowngrades63.0
ATOUBSDowngrades106.0
CSCONomuraDowngrades50.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

12 Stocks Getting Crushed By Bitcoin's Rout

Analyst: Brazilian Government An Obstacle To Boeing-Embraer Merger