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Why Hovnanian (HOV) Is Falling Today

NEW YORK (TheStreet) -- Hovnanian (HOV) was falling 6.4% to $5.68 Wednesday after reporting a larger-than-expected loss for the fiscal first quarter.

For its fiscal first quarter that ended in January Hovnanian posted a loss of 17 cents a share. That's 13 cents worse that the Capital IQ Consensus Estimate which called for a loss of 4 cents a share for the quarter. Revenue rose 1.6% from the year-ago period to $364 million for the quarter, missing analysts' estimates of $410.32 million.

"While our first quarter is always the slowest seasonal period for net contracts, the strong recovery trajectory from the spring selling season of 2013 has softened on a year-over-year basis," company chairman, president, and CEO Ara K. Hovnanian said in a press release. "Net contracts in the months of December, January and February have not met our expectations. In addition to the lull in sales momentum, both sales and deliveries were impacted by poor weather conditions and deliveries were further impacted by shortages in labor and certain materials in some markets that have extended cycle times."

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TheStreet Ratings team rates HOVNANIAN ENTRPRS INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate HOVNANIAN ENTRPRS INC (HOV) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and robust revenue growth. However, as a counter to these strengths, we also find weaknesses including relatively poor performance when compared with the S&P 500 during the past year and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HOVNANIAN ENTRPRS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HOVNANIAN ENTRPRS INC turned its bottom line around by earning $0.20 versus -$0.49 in the prior year. This year, the market expects an improvement in earnings ($0.46 versus $0.20).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 138.9% when compared to the same quarter one year prior, rising from -$84.41 million to $32.82 million.
  • The gross profit margin for HOVNANIAN ENTRPRS INC is rather low; currently it is at 22.43%. Regardless of HOV's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HOV's net profit margin of 5.54% compares favorably to the industry average.
  • In its most recent trading session, HOV has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • You can view the full analysis from the report here: HOV Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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