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NVR Up 4.2% Since Earnings Report: Can It Continue?

Zacks Equity Research
Crown (CCK) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

It has been about a month since the last earnings report for NVR, Inc. NVR. Shares have added about 4.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

NVR, one of the nation’s largest homebuilding and mortgage-banking companies, reported third-quarter 2017 earnings of $38.02 per share, surpassing the Zacks Consensus Estimate of $36.11 by 5.3%. The reported figure also rose 34% from the year-ago $28.46.

Total revenues (Homebuilding & Mortgage Banking fees) were $1.67 billion in the quarter, increasing 8% year over year on higher housing revenues and mortgage-banking fees.

Segment Details

Homebuilding: In the reported quarter, homebuilding revenues rose 8% year over year to $1.63 billion.

New orders increased 21% to 4,200 homes, driven by demand growth in the housing markets served by NVR. Settlements increased 6% year over year to 4,158 units. Average sales price was $382,800, down 3% from a year ago due to a shift in new orders from higher priced markets to lower priced ones and slashed product prices.

At the end of the reported quarter, average community count was 479, down 1% year over year.

The company’s backlog totaled 8,855 homes (as of Sep 30, 2017), up 16% year over year. Potential housing revenues from backlog increased 15% to $3.4 billion.

Margins

Homebuilding gross margin expanded 230 basis points (bps) to 19.9% owing to a modest improvement in pricing along with moderating construction costs.

As a percentage of homebuilding revenues, selling, general and administrative expenses (SG&A) were 5.9%, down 30 bps year over year.

Mortgage Banking: In the quarter, Mortgage banking fees grew 13.6% year over year to $34.2 million. Mortgage closed loan production in the quarter totaled $1.12 billion, reflecting an increase of 6% year over year.

Financials

NVR’s cash and cash equivalents totaled $611.1 million as of Sep 30, 2017 compared with $375.7 million as of Dec 31, 2016.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

Currently, the stock has an average Growth Score of C, a grade with the same score on the momentum front. Following a similar course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is equally suitable for growth and momentum investors.

Outlook

The stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.


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