Slightly Good News From Homebuilder Earnings (HOV, TOL, XHB)

Traders are lightly selling Hovnanian Enterprises Inc. (NYSE: HOV) and Toll Brothers Inc. (NYSE: TOL) after the two homebuilders reported earnings between yesterday’s close and this morning’s open.  The news is also impacting the SPDR S&P Homebuilders (NYSE: XHB) on a lesser basis.

Hovnanian (HOV) rose as the numbers were not as bad as expected.  Imagine a -$1.50 loss for a $3.00 stock not being atrocious… The homebuilder lost $118.6 million for the quarter, but this compares to a loss of $340.7 million (-$5.29 EPS) a year ago.  Revenue was essentially cut in half and came in at $398 million.

Toll Brothers (TOL) managed to post a narrower loss.  This homebuilder lost $83.2 million, or -$0.52 EPS, and said writedowns were lower than expected.  Toll lost $93.7 million a year ago, or -$0.59 EPS.  Revenue fell 51 percent to $398.3 million from $818 million.It also said that buyers are returning to the market.

Toll Brothers is down 0.6% at $19.40 in early trading and on thin volume of only about 5,000 shares; its 52-week trading range is $13.55 to $28.00.  Hovnanian is down 2.3% at $2.95 in early trading on about 50,000 shares; its 52-week range is $0.52 to $9.67.

The SPDR S&P Homebuilders (NYSE: XHB) is down marginally on very thin trading volume after a $12.72 close; its 52-week trading is $8.00 to $24.93.   Again, it is hard to call any of the news as good news when you see drops this big.  But when everyone keeps looking merely for green shoots, sometimes bad is just good enough.

Jon C. Ogg
June 3, 2009