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NVR (NVR) Up 6.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Imperial Oil (IMO) 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 (NVR). Shares have added about 6.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is NVR 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.

NVR Beats Q4 Earnings Estimates, Sees Tax Rate Benefits

NVR, Inc. reported fourth-quarter 2018 earnings of $58.57 per share, beating the Zacks Consensus Estimate of $48.46 by 20.9%. Also, earnings of NVR, one of the country’s leading homebuilding and mortgage banking companies, increased 103% from the prior-year quarter, primarily owing to a reduction in effective tax rate.

Total revenues (Homebuilding & Mortgage Banking fees combined) were $1.99 billion in the quarter, up 10% year over year on higher homebuilding and mortgage revenues.

Segment Details

Homebuilding: In the reported quarter, homebuilding revenues increased 10% year over year to approximately $1.95 billion. However, new orders plunged 11% from the prior-year quarter to 3,841 units. Average sales price (“ASP”) of new orders in the quarter was $376,100, reflecting a 1% year-over-year decline. That said, settlements increased 12% from the year-ago quarter to 5,186 units.

At the end of the reported quarter, average community count was 477, down from the prior-year level of 485 units.

As of Dec 31, 2018, backlog (homes sold but not settled) decreased 2% from a year ago to 8,365 units and 4% (on a dollar basis) to $3.2 billion.

Margins

In the fourth quarter of 2018, gross profit margin contracted 70 bps to 18.6%, while income before tax increased 5% from the year-ago quarter to $255.1 million. Selling, general and administrative (SG&A) expenses were $107.4 million compared with $97.7 million in the prior-year quarter.

Mortgage Banking: In the reported quarter, Mortgage banking fees rose 15.2% year over year to $40.1 million. Mortgage totaled $1.36 billion in closed loan production, marking an increase of 10% year over year.

Meanwhile, earnings per share were favorably impacted by a reduction in the company's effective tax rate, which was 16.3% in the quarter compared with 52.3% in the year-earlier period.

2018 Highlights

Full-year earnings came in at $194.80 per share, reflecting an increase of 54% from the 2017 level. Total revenues amounted to $7.2 billion, reflecting a 14% year-over-year increase. Gross margin contracted 50 bps to 18.7% in 2018. Meanwhile, income before tax, for the homebuilding segment, improved 12% from a year ago to $871.1 million.

New orders and settlements during the year increased 4% and 16% from the year-ago level to 18,281 and 18,447 units, respectively. Again, homebuilding revenues in 2018 totaled $7 billion, up 13% from 2017.

Effective tax rate was 16.9% in 2018 versus 36.5% a year ago.

Financials

As of Dec 31, 2018, NVR’s cash and cash equivalents for Homebuilding and Mortgage Banking were $688.8 million and $23.1 million, respectively, compared with $645.1 million and $21.7 million on Dec 31, 2017.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, NVR has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

NVR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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