Why did David Einhorn sell Greenlight’s stake in homebuilder NVR?

Market Realist

Greenlight Capital's fourth quarter positions (Part 5 of 8)

(Continued from Part 4)

Greenlight Capital and NVR

Greenlight exited a 0.33% stake in NVR last quarter that was initiated in 3Q 2013. NVR is a homebuilder and mortgage originator based in Reston, Virginia. The company builds single-family homes, townhouses, and condominiums.

The homebuilder reported an increase in net income of $97.8 million, or $21.15 per share, for 4Q 2013, compared to $60.6 million, or $11.98 per share, in the same quarter of 2012. Revenue increased 32%, to $1.24 billion from $943.7 million. Although orders for new homes were flat year-over-year, the revenue increase was due to a 10% rise in average new order price. Mortgage-closed loan production of $721 million for 4Q 2013 was 12% higher than the same period in 2012, but operating income for the mortgage banking operations decreased 19%, to $7.8 million, due to an increase in overhead costs.

We reported last year at Market Realist that NVR stock fell about 4.3% on the back of its third quarter earnings report. In 3Q 2013, orders received fell 7%, while backlog was up 24% on a dollar basis and 14% on a per-unit basis. All three indicators were lower than 2Q. Cancellation rates increased to 19%, which was the highest level since 2008. Gross margins fell slightly, to 17.4% from 17.8% a year earlier.

A Bloomberg report recently noted that shares of U.S. homebuilders are leading consumer discretionary stocks, with the new home market expected to rebound faster than other cyclical purchases this year. The outlook for the housing market remains positive despite higher mortgage rates.

NVRH

In a Market Realist article this week titled “An onslaught of snowfall slumps US homebuilder sentiment,” Brent Nyitray said that builders—like NVR and its peers Lennar (LEN), D. R. Horton (DHI), and PulteGroup (PHM)—are in a good position right now, with tight inventory. They’re able to increase margins and drive revenue by increasing prices.

Continue to Part 6

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