Barron's Magazine has ranked the top 500 American companies based on cash flow return on investment. While several mortgage-related companies made the list -- homebuilders placed highest.
Of all 500 top-performing U.S. and Canadian firms, Hovnanian Enterprises placed fifth on Barron's list with a grade point average of 3.75. The homebuilder's 52-week high on its stock was 59.55, while the low was 29.01. The New Jersey-based entity originates home loans through K. Hovnanian American Mortgage LLC.
Barron's said it looks at firms by sales to get the largest 500 and centralizes its rankings on cash flow return on investment, or CFROI, which "measures the real cash returns on the capital invested in a company, stripped inflation effects and accounting practices, which could distort conventional earnings."
Four criteria reportedly apply to the rankings: stock-market performance relative to the S&P 500 for the year ended April 30, the median CFROI for the latest three fiscal years prior to 2004, the 2004 CFROI growth compared to that median, and the revenue change in 2004 on 2003. The measures are evaluated and then combined into a grade-point average, with 4.0 being the equivalent of straight A's in each of the criteria.
Hovnanian was shy of a 4.0 due to receiving a B grade in the criteria for 2004 CFROI return compared to the median of the CFROI for the prior three years.
Following Hovnanian at No. 13 with a 3.50 GPA was luxury homebuilder, Toll Brothers, parent of Westminster Mortgage.
Rounding out the top 30 with GPAs of 3.25 were: Goldman Sachs Group at No. 19; Pulte Homes, whose subsidiary Pulte Mortgage's volume was $6.1 million in the first quarter, placed 25th; and at No. 27 was D.R. Horton, parent of DHI Mortgage.
GPAs of 3.0 earned American Express, which originates home loans through American Express FSB, the 47th spot, and in the 49th slot was the owner of CTX Mortgage and Centex Home Equity Corp., Centex.
The rest of the mortgage-associated entities within the top 100 had a GPA of 2.75 on their report cards. In No. 57 was Sallie Mae, best known for its education financing than for home loan and home equity lending, followed by last year's largest mortgage originator -- Countrywide Financial -- at No. 65. The two companies had the same grades in each of the four criteria, with the GPA consisting of a B, two A's and an F -- received on the 2004 sales growth on 2003 criteria. Sharing the same GPA with no F's involved were Lehman Brothers Holdings at No. 81, and in 97th place was the homebuilder parent of KB Home Mortgage.