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Why Hovnanian Enterprises Stock Jumped 10% on Friday

By Rich Smith - Dec 2, 2016 at 6:50PM

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The stock's for sale, and potential buyers are queuing up.

Investors who bid up Hovnanian stock on Friday may have been reading the tea leaves ahead of next week's earnings report. Image source: Getty Images.

What happened

Donald Trump's pick to run the Treasury Department uttered some frightening words for homeowners -- and investors in homebuilders -- this week, promising to "cap" the deduction of mortgage interest payments from taxpayers' income taxes sometime in the next four years. And yet, shares of homebuilder Hovnanian Enterprises (HOV 0.10%) nonetheless were off to the races in Friday trading, gaining as much as 10.5% during the day before closing up 8.5%.

What gives?

So what

Political promises come and political promises go, and anything the President-elect's cabinet wants to get done must first survive Congress before it can become a law. Meanwhile, Hovnanian soldiers on in the business of building and selling houses -- and reporting earnings from same.

In that regard, investors may be discounting Treasury pick Mnuchin's threat to cap the mortgage interest deduction at some time in the far future, and choosing instead to focus on Hovnanian's upcoming earnings report, which is due out on Thursday, December 8.

Now what

According to analysts who follow the company, Hovnanian is expected  to report a $0.02 per-share loss for the fiscal year on Thursday. If they're right, that won't be "good" news exactly, but it will be a smaller loss than the $0.11 per-share loss reported in fiscal 2015. At the same time, analysts are looking to see Hovnanian report a big jump in sales for the year, with $2.77 billion in 2016 revenue eclipsing last year's total by 29%.

Even more important than the 2016 results could be Hovnanian's promises for the year ahead. Currently unprofitable and likely to remain so after Thursday's results, Hovnanian is expected to return to profitability in 2017. If it confirms this expectation this coming week, and perhaps offers hope of earning more than analysts expect it to earn ($0.09 per share for 2017 is the current consensus), then investors who bid up Hovnanian shares on Friday could discover that they weren't just early -- but also right to buy.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he currently ranks No. 340 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Hovnanian Enterprises, Inc. Stock Quote
Hovnanian Enterprises, Inc.
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