Hovnanian Ent. Mark Robbins As of Oct.13 2004
THE COMPANY • Hovnanian Enterprises, Inc. designs, constructs and markets single-family detached homes and attached condominium apartments and townhouses in planned residential developments in the United States. • It primarily markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active adult buyers and empty nesters.
THE COMPANY (CONT.) • As of October 31, 2003 (fiscal year-end 2003), the Company was offering homes for sale in 257 communities in 23 markets throughout the United States. They operate in 15 states and mostly along the East Coast. However, they have huge market share in Southern California, Texas, Minnesota, and Arizona. • . Hovnanian strives to create diversity within the overall planned community by offering a mix of homes with differing architecture, textures and colors. Recreational amenities such as swimming pools, tennis courts, clubhouses and tot lots are frequently included. In fiscal 2003, the Company delivered 11,531 homes.
COMPANY’S ROLE IN THE MARKET • They are considered to be one of the leaders. • Pulte homes is one Hovnanians biggest competitors and is considered one of the big dogs in the homebuilding industry and has not been doing very well.
How They gain Advantage • Hovnanian's strategy is to achieve powers of scale and market concentration by establishing a large presence in each of its markets. Hovnanian leverages its market position and expands profit sources by providing mortgage and title services to homebuyers. Hovnanian has also been a leader in implementing streamlined processes and technology solutions for home sales and construction, leading to improved operational efficiencies. • Hovnanian is highly diversified by product type, selling a wide array of attached and detached home styles to buyers ranging from first-time purchasers to luxury buyers. The Company is also a significant developer of active adult communities, and has developed a specialization in urban infill locations.
Advantages • They use an eight selection benchmark • Price-buy materials in bulk to reduce construction costs. High technology that eliminates payroll costs. Selling and marketing costs low, due to so sites under development. Take lower profits per home because they know they will sell more. • Dependability • Service • People • Choice- They have tons of different housing layouts and to custom homes. • Quality • Design • Location- They are building where people want to be going.
Their Customers • Anyone looking to purchase a home. • They are very diversified and build luxury homes to townhouses. • They also build condominiums for the elderly. • They have their foot in almost every door.
Management • The Inventor of the company is Kevork Hovnanian, 80, and is now the chairmen. • His son Ara Hovnanian is now the CEO and the president and the director. He is 46 and had been working with the company for over 20 years. • The rest of the top management has no one over the age of 50. • All of the top management have been working their for over 8 years and have made the company what it is today. • All of the top management are paid a lot of money, at least 7 digits, and reinvest a lot of their money back into the company.
Market Overview • They are in the Consumer Discretionary Sector and found in the construction services industry (Yahoo), or the homebuilders industry( S&P 500). • They are a mid-cap company are found in the S&P 400 Mid-Cap index. • They have a market Cap of 2.1B.
Direct Competitor Comparison • HOV CTX KBH PHM Industry • Market Cap: 2.17B 5.83B 3.01B 6.24B 115.82M • Employees: 2,370 16,532 5,100 10,800 953 • Rev. Growth (ttm): 25.50% 13.70% 16.30% 21.10% 8.80% • Revenue (ttm): 3.80B 10.96B 6.55B 10.10B 262.80M • Gross Margin (ttm): 26.11% 11.80% 22.81% 22.25% 20.13% • Net Income (ttm): 306.17M 821.15M 432.90M 728.57M 1.92M • EPS (ttm): 4.658 6.272 10.3 5.7 0.12 • PE (ttm): 7.64 7.52 7.51 8.63 9.82 • PEG (ttm): 0.24 0.44 0.60 0.45 0.78 • PS (ttm): 0.59 0.55 0.47 0.63 0.50 • CTX = Centex Corp • KBH = KB Home • PHM = Pulte Homes • Industry = Construction Services
Key Facts • Hovnanian has produced significant shareholder value over the past five years. Earnings per share in fiscal 2002 of $3.93 represented an 83% increase over fiscal 2002's record performance, and return on beginning equity of 46%. • The Company has achieved a compounded rate of growth in earnings of 74% over the past three years and 47% over the past five years. • This rate of growth contributed to Hovnanian being selected to FORTUNE magazine's 2004 list of the "100 Fastest Growing Companies" in the U.S. for the third consecutive year. Management expects earnings per share to increase by 36% in fiscal 2004, to over $5.30 per share, on more than 14,700 home deliveries.
The Big Threat • When is the REAL ESTATE market going to slow down. • Interest rates are starting to rise and will continue to rise. Over the past two weeks the real estate market has seen a downward turn as the next slide will tell you. • Question: Can we consider this stock as being undervalued while seeing the Sector as being overvalued.