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Okay, by now we're all aware of housing's ongoing recovery. Most of the plays have rallied significantly in the past year as wary investors unwind short positions and begrudgingly embrace the industry.

But, despite big moves, many of these stocks remain under-owned. And, that could be the next catalyst for homebuilders like Hovnanian Enterprises (NYSE:HOV).

Hovnanian got hit hard in the recession.

The builder of homes across 16 states peaked north of $70 at the housing bubble's height in 2005 only to fall to $0.52 in 2009. In fact, Hovnanian hasn't posted positive earnings per share since 2006.

The stock, which trades just shy of $6, has moved significantly since making those lows. However, a return to positive earnings this year may mean there's still considerable room to run.

Top tier homebuilders with stronger balance sheets, including Lennar (NYSE:LEN) and Toll Brothers (NYSE:TOL), have been more broadly embraced by wary investors. Meanwhile, Hovnanian -- with its more onerous credit and cost overhangs -- has remained in the periphery for all but the most willing risk takers.

But, Hovnanian may be turning the corner as new build volume finally hits levels necessary for leveraging fixed costs.

Last quarter, total revenue improved 32.9% to $358.2 thanks to 17.4% more homes being delivered. The surge in home deliveries helped gross margins climb to 17% from 16.5% the prior year. And, while margins may trail some of the competitors, last quarter marked a good start in the right direction.

Importantly, SG&A was 13.8% of total revenues during the quarter versus 17.1% of total revenues last year.

There's obviously more work to do on costs.

At D. R. Horton (NYSE:DHI), SG&A is only 11.4%. At Pulte (NYSE:PHM) it's only 9.6%. And, at Ryland (NYSE:RYL) it's 13.4%. But, the drop from a year ago was significant and shouldn't be ignored.

In Hovnanian's most recent conference call, CEO Ara Hovnanian had this to say about margin expansion, "As our revenues continue to grow throughout the year, we would expect further improvements in our SG&A ratio each quarter and favorable year-over-year comparisons. On a historical basis, our normalized SG&A ratio is approximately 10% of revenues."

As the company works its way down to the historical 10% level, the profit picture should become increasingly convincing for investors.

Orders remained strong too.

Through January, the company's contract backlog was $812.1 million for 2301 homes, up 40.4% and 33%, respectively from a year ago.

And, the strength continued in February. The dollar value of net contracts and number of net contracts gained 31.3% and 17.8%, respectively from February 2012.

The industry optimism for 2013 was summed up during the conference call.

"We are optimistic that the recent increases in net contracts we have reported will continue and could lead to our best spring selling season in years," said Mr. Hovnanian.

The combination of margin expansion and higher sales positions the company nicely through this year and into 2014. Analysts estimate earnings per share will improve to $0.47 next year and investors will likely begin modeling for those earnings in the back-half of this year. If so, we could see the company's forward P/E come more in line with competitors.

Source: E.B. Capital Markets, LLC

Source: Hovnanian May Be The Best Buy In Housing