Contrasting Meritage Corporation (MTH) and Hovnanian Enterprises (HOV)

Meritage Corporation (NYSE: MTH) and Hovnanian Enterprises (NYSE:HOV) are both small-cap construction companies, but which is the better stock? We will compare the two businesses based on the strength of their dividends, earnings, profitability, institutional ownership, risk, valuation and analyst recommendations.

Profitability

This table compares Meritage Corporation and Hovnanian Enterprises’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Meritage Corporation 4.94% 10.74% 5.16%
Hovnanian Enterprises 0.56% -8.20% 0.98%

Insider and Institutional Ownership

97.1% of Meritage Corporation shares are held by institutional investors. Comparatively, 29.8% of Hovnanian Enterprises shares are held by institutional investors. 5.6% of Meritage Corporation shares are held by company insiders. Comparatively, 15.4% of Hovnanian Enterprises shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Meritage Corporation and Hovnanian Enterprises, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Meritage Corporation 2 6 1 0 1.89
Hovnanian Enterprises 1 1 0 0 1.50

Meritage Corporation presently has a consensus target price of $40.29, indicating a potential downside of 4.31%. Hovnanian Enterprises has a consensus target price of $1.55, indicating a potential downside of 23.27%. Given Meritage Corporation’s stronger consensus rating and higher probable upside, research analysts clearly believe Meritage Corporation is more favorable than Hovnanian Enterprises.

Valuation and Earnings

This table compares Meritage Corporation and Hovnanian Enterprises’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Meritage Corporation $3.12 billion 0.54 $241.92 million $3.64 11.57
Hovnanian Enterprises $2.66 billion 0.10 $137.91 million $0.09 22.44

Meritage Corporation has higher revenue and earnings than Hovnanian Enterprises. Meritage Corporation is trading at a lower price-to-earnings ratio than Hovnanian Enterprises, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Meritage Corporation has a beta of 1.47, indicating that its stock price is 47% more volatile than the S&P 500. Comparatively, Hovnanian Enterprises has a beta of 1.69, indicating that its stock price is 69% more volatile than the S&P 500.

Summary

Meritage Corporation beats Hovnanian Enterprises on 11 of the 14 factors compared between the two stocks.

Meritage Corporation Company Profile

Meritage Homes Corporation operates as a holding company. The Company is a designer and builder of single-family homes. The Company operates through two segments: homebuilding and financial services. The homebuilding segment is engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer services. It builds homes in the regions of the United States and offers a range of homes that are designed for a range of homebuyers, including first-time, move-up, active adult and luxury. As of December 31, 2016, it had homebuilding operations in three regions: West, Central and East, which were consisted of nine states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. It also operates Carefree Title Agency, Inc. (Carefree Title) company. Carefree Title’s core business includes title insurance and closing/settlement services it offers to its homebuyers.

Hovnanian Enterprises Company Profile

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. The Company has two distinct operations: homebuilding and financial services. Its homebuilding operations consist of six segments: Northeast: New Jersey and Pennsylvania; Mid-Atlantic: Delaware, Maryland, Virginia, Washington, District of Columbia, and West Virginia; Midwest: Illinois and Ohio; Southeast: Florida, Georgia and South Carolina; Southwest: Arizona and Texas, and West: California. Its financial services operations provide mortgage loans and title services to the customers of its homebuilding operations. The Company markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters.

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