JMP Securities Downgrades Hovnanian Enterprises (HOV) to Market Underperform
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JMP Securities downgraded Hovnanian Enterprises (NYSE: HOV) from Market Perform to Market Underperform with a price target of $1.60 saying they believe difficult 2017 operating comps are not properly reflected in the current stock price.
Analyst Peter Martin commented, "Over the last 90 days, shares of HOV are up ~66% versus the S&P at 6%, which has pushed the 2018 EPS multiple to 13.6x from 7.5x. We feel the move is overdone considering 1H17 has extremely difficult community count comps, leading us to believe management’s 2018 guidance of a recovery toward 2016 delivery levels is too optimistic. Despite the homebuilder industry being five years removed from the housing downturn, HOV failed to generate positive GAAP earnings over the last two years and we think it will struggle to do so again in 2017. We see HOV’s cumbersome debt load and land banking arrangements as a material negative, especially if sales pace falters as fixed interest expense would have an outsized negative impact on the bottom line. As a result of our outlook, we lower our FY17 and FY18 normalized EPS expectations to $0.03 and $0.20 from $0.11 and $0.21 per share. We also believe HOV’s $628mm valuation allowance is at risk of impairment either through a decline in corporate tax rates related to Trump’s tax plan or an inability to generate the necessary $2B in pre-tax earnings over the remaining timeframe. Given HOV’s operating model headwinds, we think the shares should be valued at 8.0x our 2018 EPS estimate versus the group at approximately 9.5x. Based on our target multiple, we arrive at a price target of $1.60, which provides 48% potential downside from current levels."
Shares of Hovnanian Enterprises closed at $2.72 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS Change, Downgrades, Hot Downgrades
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