Hovnanian (HOV) Could Be a Cash Deathtrap for Investors -Barron's
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Although new home builder confidence is up substantially over the past three months, Barron’s believes new and long-term owners of Hovnanian Enterprises (NYSE: HOV) maybe in for some major disappointment. Shares of HOV are up roughly 20 percent over the last three months, but are trading down almost 4.3 percent on the day.
Barron’s suggests the company might be cash strapped moving forward as management tries to pay off its $1.6 billion in bond debt. The article, citing weak demand and acquisitions, believes Hovnanian has not earned enough cash to cover the interest costs on the bonds since 2006. The company’s cash level fell around 33 percent last year.
Hovnanian's options to generate the funds needed are running low as the company has no bank credit lines to fall back on and management has already cut costs by 78 percent since 2006. Barron’s notes the company does have the option to sell some of its raw land which is valued around $250 million, or slow building and development on new land. Both of these decisions may negatively affect the company’s long-term growth outlook.
The company’s chief financial officer stated Hovnanian may need recapitalization down the road if the market does not pick back up by the end of 2015, but some analysts are forecasting it may be a lot sooner. The company generally racks up $150 million in interest expenses annually and has used nearly $90 million in cash through the first nine months of the year.
Barron’s suggests the company might be cash strapped moving forward as management tries to pay off its $1.6 billion in bond debt. The article, citing weak demand and acquisitions, believes Hovnanian has not earned enough cash to cover the interest costs on the bonds since 2006. The company’s cash level fell around 33 percent last year.
Hovnanian's options to generate the funds needed are running low as the company has no bank credit lines to fall back on and management has already cut costs by 78 percent since 2006. Barron’s notes the company does have the option to sell some of its raw land which is valued around $250 million, or slow building and development on new land. Both of these decisions may negatively affect the company’s long-term growth outlook.
The company’s chief financial officer stated Hovnanian may need recapitalization down the road if the market does not pick back up by the end of 2015, but some analysts are forecasting it may be a lot sooner. The company generally racks up $150 million in interest expenses annually and has used nearly $90 million in cash through the first nine months of the year.
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