Hovnanian Ent.

1
Hovnanian Ent.

• Mark Robbins
• As of Oct.13 2004

2
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.

3
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.

4
COMPANYS 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.

5
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.

6
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.
  

7
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.

8
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.

9
Market Overview

• They are in the Consumer Discretionary Sector and
  found in the construction services industry
  (Yahoo), or the homebuilders industry( SP 500).
  
• They are a mid-cap company are found in the SP
  400 Mid-Cap index.
  
• They have a market Cap of 2.1B.

10
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

11
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.

12
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.

13
Hovnanian Price Performance (Two Years)
14
HOV vs. TOL vs. SP 500
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Hovnanian price performance(Three Months)
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