Home Run: Hovnanian’s Earnings Lift Homebuilders

Hovnanian Enterprises’ (HOV) earnings report was ho-hum–but more than enough to lift the stock and other homebuilders.

Reuters

The Wall Street Journal reports:

For the period ended July 31, Hovnanian reported a profit of $8.5 million, or six cents a share, down from $34.7 million, or 25 cents a share, a year earlier. The year-earlier period included a $36.5 million income tax benefit and $6.2 million in debt-extinguishment gains.

Revenue jumped 24% to $478.4 million.

Analysts polled by Thomson Reuters recently expected per-share earnings of seven cents and revenue of $505 million.

Adjusted home-building gross margin rose to 20.3% from 18.2%.

The initial reaction to those numbers was ho-hum as well, as Hovnanian’s shares opened down 0.2%. Still, it didn’t take long for investors to realize there were more to them a simple earnings miss. Hovnanian predicted a profitable year for the first time since 2006, for instance, and it also helped that CEO Ara Hovnanian was feeling pretty good during the company’s conference call. Comments like these (courtesy of FactSet):

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…we’re confident that the any hesitancy our consumers have seen or felt or acted with the higher rates will be a temporary bump in the road to housing recovery.

Our confidence is bolstered by analysis of long-term home ownership affordability…Even though there’s some sticker shock for consumers with the recent increase in mortgage rates and the increase in home prices, we’re still very comfortable at the affordability levels compared to historic standards.

Even if the 30-year mortgage rates were to increase 100 basis points to 5.4%, and if home prices on top of that went up another 6% from the June 13 levels…affordability would still be better than at any point in the period [from] 1975 through 2007, notwithstanding the current two-month record high affordability  levels.

Combine that with an ever-so-slightly lower 10-year yield and you have a recipe for a housing rally. Hovnanian has gained 2.8% to $5.18, but that was nothing compared to other gainers today. PulteGroup (PHM) has jumped 8.1% to $16.73, MDC Holdings (MDC) has risen 7% to $29.59, D.R. Horton (DHI) has climbed 6.6% to $19.30 and the Ryland Group (RYL) is up 5.9% at $37.98.

The question now: Can the sector build on those gains?

(Sorry. I couldn’t help myself.)