NVR, Inc. NVR touched a new 52-week high of $5,538.74 on Mar 20, 2023. The stock pulled back to end the trading session at $5,494.47, down 0.16% from the previous day’s closing price of $5,503.
NVR has gained 12.1% in the past year, compared with the Zacks Building Products - Home Builders industry’s 13.4% growth, Zacks Construction sector’s 4.5% decline and S&P 500 Index’s 14.3% fall.
The company has been reaping benefits from a disciplined business model and by focusing on maximizing liquidity and minimizing risks. These are likely to help NVR generate more returns for shareholders in the long term.
Earnings estimates for 2023 have moved up to $394.77 per share from $357.51 over the past 30 days. This positive trend signifies analysts’ bullish sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term.
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You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Driving Growth
Disciplined Business Model: NVR’s main business involves selling and building quality homes and acquiring finished building lots without the risk of owning and developing land in a cyclical industry. This business strategy is in sharp contrast to that of the other homebuilders.
The lot acquisition strategy helps the company avoid financial requirements and risks associated with direct land ownership and land development. This strategy allows it to gain efficiencies and a competitive edge over its peers. Lots controlled by the company at 2022-end increased 5.6% to 131,900 from 124,900 at 2021-end. Although the company is concerned about future operational and financial performance owing to the coronavirus pandemic, its solid business fundamentals continue to drive earnings.
Strong Result: NVR’s business has been witnessing strong earnings and revenues. In fourth-quarter 2022, the company reported earnings growth of 49.8% year over year. Total revenues (Homebuilding & Mortgage Banking fees combined) of $2.71 billion also increased 22% on a year-over-year basis. Its homebuilding revenues were up 23% from the year-ago quarter’s levels. The upside was mainly driven by strong deliveries and higher home prices. Settlements (deliveries) in the quarter were up 13% to 5,749 units and the average selling price or ASP, was up 9% year over year. Gross margin also increased 90 basis points (bps).
In 2022, revenues from homebuilding increased 19%, settlements rose 6% and ASP was up 12.5% year over year. Gross margin improved 350 bps and earnings of $491.82 per share increased 53.5% from the prior-year period’s levels.
Cost Containment Efforts: Although the housing industry as a whole has been witnessing project delays and soft demand due to supply chain issues and inflationary pressure, NVR and others have undertaken various price actions as well as cost-saving moves to combat these woes. These companies are currently observing price-cost neutrality, which will certainly reduce pressure on the bottom line.
First-Time/Entry-Level Buyers: In order to address the affordability issue in the U.S. housing market, the majority of homebuilding companies are focused on the growing demand for first-time/entry-level homes and making them available at lower prices. NVR’s Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes currently operates in thirty-five metropolitan areas.
Other Stocks to Consider
Other top-ranked stocks in the same space are Taylor Morrison Home Corporation TMHC, Toll Brothers, Inc. TOL and United Rentals, Inc. URI.
Taylor Morrison: This Scottsdale, AZ-based homebuilder’s ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings. The company’s well-balanced, diverse mix of portfolio and operating strategy is encouraging. TMHC has expanded its market footprint and product positioning in recent years through acquisitions and impressive organic growth, thereby serving a broad range of consumers in the entry-level, first-and-second move-up and resort lifestyle segments across the country. The success of these efforts has been driving growth for the company and enhancing its liquidity level, enabling it to take advantage of investment opportunities as the market evolves.
TMHC currently holds a Zacks Rank #1. The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.46 per share from $5.47 per share over the past 30 days.
Toll Brothers: Based in Horsham, PA, Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and a solid backlog.
TOL currently carries a Zacks Rank #2 (Buy). Earnings estimates for fiscal 2023 have increased to $8.66 per share from $7.87 per share over the past 30 days.
United Rentals: currently carries a Zacks Rank #2. The long-term earnings growth rate of the company is 16.3%.
The Zacks Consensus Estimate for URI’s 2023 sales and EPS indicates growth of 20.3% and 28.3%, respectively, from the previous year’s reported levels.
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