Residential home builder Hovnanian (NYSE: HOV) stock has risen to nosebleed levels rising from $5 in July 2019 to hit highs of $146.30 in June 2021. While home builders have been incredibly strong with the housing market and shortage of new homes, investors should also take into account where stock prices are coming from. When comparing a stock that triples from $40 to $120 (up 3X) with a stock rising 29X from $5 to $145 (29X) in two years, the latter is more susceptible to a deeper reversion. Of course, the question of whether fundamentals justify the valuation is another issue as well as the industry environment and catalysts. Supply chain disruption and labor constraints impacted its Q4 2021 earnings release and will continue to be an issue in 2022. Three Federal Reserve rate hikes expected in 2021 could impact the real estate market significantly towards the end of the year. Prudent investors can consider trimming down exposure in shares of Hovnanian at opportunistic exit price levels selling into strength before the momentum completely reverses.
Q4 Fiscal 2021 Earnings Release
On Dec. 7, 2021, Hovnanian released its fiscal fourth-quarter 2021 results for the quarter ending October 2021. Revenues grew 19.2% year-over-year (YoY) to $814.3 million and up 18.7% for 2021 with revenues at $2.78 billion on the year. The Company reported earnings-per-share (EPS) profits of $7.41 or $52.5 million, up from $5.54 EPS or $40.6 million in the year-ago period. EBITDA grew 38.6% to $117.2 million in Q4 2021. Community count increased to 140 communities, up from 135 communities in 2020. Consolidated backlog increased 15.4% to $1.64 billion and consolidated deliveries rose 8.3% to 1,703 homes.
Hovnanian CEO Ara Hovnanian commented, “Supply chain issues have plagued the housing industry, which caused us to conservatively revise our year-end guidance down during the fourth quarter. However, our associates rose to the occasion and worked diligently to mitigate supply chain obstacles and deliver quality homes without some of the excess costs we thought might be necessary to complete the homes. Those extraordinary efforts allowed us to achieve operating results for the fourth quarter exceeding the upper end of our original guidance for adjusted gross margin, adjusted pretax income and adjusted EBITDA. Given the solid level of sales per community, an increase in our community count and higher gross margin on current sales and homes in backlog, we are anticipating significant growth in profitability in fiscal 2022 beginning with a strong first quarter.” He continued, “Our strong results during fiscal 2021 resulted in our key credit metrics improving substantially. We lowered our total debt to adjusted EBITDA ratio to 3.8 times at the end of fiscal 2021 compared with 6.7 times at the end of the previous year. Additionally, our adjusted EBITDA to interest incurred ratio increased to 2.3 times for fiscal 2021 compared with 1.3 times for fiscal 2020. We expect to continue our trend of improving our key credit metrics in future periods and are pleased to announce our Board of Directors approved reinstating a $2.7 million dividend payment on our preferred stock payable in January 2022. Our pretax income increased substantially to almost $200 million in fiscal 2021. Additionally, we generated significant amounts of cash in fiscal 2021, allowing us to payoff $181 million of our secured bonds ahead of maturity and we still ended the year with $381 million of liquidity, well above the upper end of our liquidity target of $245 million. After increasing equity substantially in fiscal 2021, we expect to achieve diluted earnings per share of between $26.50 and $32.00 for the full fiscal 2022 year and expect to more than double our shareholders equity by fiscal year end. Given that we are entering fiscal 2022 with over half of our revenue guidance in backlog, combined with our strong sales pace and gross margins, we look forward to an extraordinarily strong new year.”
HOV Opportunistic Exit Levels
Using the rifle charts on the weekly and daily time frames provides a near-term precision view of the price action playing field for HOV shares. The weekly rifle chart peaked near the $144.79 Fibonacci (fib) level before collapsing to the $80.56 fib level before bouncing. This caused the weekly rifle chart to trigger a market structure low (MSL) buy signal above the $92.68 level. The weekly uptrend has a rising 5-period moving average (MA) at $119.37 followed by the 15-period MA at $99.60. The daily rifle chart has been uptrending with a pup breakout as it attempts another pup breakout which appears to be stalling. The daily 5-period MA sits at $128.48 followed by the 15-period MA at $123.14. The daily upper Bollinger Bands (BBs) sit at $144.67. The daily stochastic is losing steam at the 80-band as it crosses back down. Prudent investors can watch for opportunistic exit levels into strength from the $119.86 fib to the $135.83 fib level. The weekly MSH sell triggers on the $110.84 breakdown, which is a good stop area on long positions.
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