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NVR to Report Q1 Earnings: What's in Store for the Stock?

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NVR, Inc. NVR is expected to report first-quarter 2018 results on Apr 19. Last quarter, the company’s earnings fell shy of the Zacks Consensus Estimate by 11.3%. Meanwhile, the company surpassed expectations in three of the last four quarters, with the average being 11.03%.

In fact, shares of NVR, one of the leading homebuilding companies, have gained 3.5% in the last six months, comparing favorably with the industry’s 1% decline.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

The company has been reporting solid top-line numbers and the trend is expected to continue in the soon-to-be-reported quarter as well, owing to strong demand for homes, favorable job market and impressive economic conditions.

Total revenues (Homebuilding & Mortgage Banking fees) totaled $6.3 billion in 2017, up 8.3% year over year. Homebuilding revenues increased 8%, primarily on 6.9% year-over-year increase in the number of settled units. The trend is expected to continue in the to-be-reported quarter as well, evident from the company’s solid backlog. As of Dec 31, 2017, backlog of homes increased on a unit basis by 24% and dollar basis by 21% to $3.3 billion.  

Notably, the Zacks Consensus Estimate for total revenues is pegged at $1.51 billion, implying a year-over-year rise of 21.4%. Meanwhile, the consensus estimate for homebuilding revenues is $1.4 billion, indicating an increase from $1.2 billion a year ago but a decrease from $1.8 billion in the prior quarter.

Moreover, the company focuses on its disciplined business model, based on maximizing liquidity and minimizing risk. Unlike other homebuilders, NVR’s sole business is selling and building quality homes by typically acquiring finished building lots, without the risk of owning and developing land in a cyclical industry. The cash generated is thus used to expand business while returning excess capital to shareholders through buy-back programs.

Again, with a modest rise in pricing and moderated construction costs, NVR was able to witness gross margin expansion of 150 basis points (bps) in the fourth quarter and 170 bps in full-year 2017. The trend is expected to be maintained in the quarter to be reported as well.

For the first quarter, the Zacks Consensus Estimate for earnings is pegged at $31.44 per share, reflecting a 25.2% year-over-year increase.

Earnings Whispers

Our proven model does not conclusively show that NVR is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass estimates.

For NVR, however, this is not the case as listed below —

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NVR’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

NVR, Inc. Price and EPS Surprise


NVR, Inc. Price and EPS Surprise | NVR, Inc. Quote

Stocks Worth a Look

Here are a few homebuilding stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

PulteGroup, Inc. PHM has an Earnings ESP of +4.55% and carries a Zacks Rank #3. The company is set to report quarterly results on Apr 24.

D.R. Horton DHI has an Earnings ESP of +1.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is set to report quarterly numbers on Apr 26.

Meritage Homes Corporation MTH has an Earnings ESP of +0.31% and a Zacks Rank #3. The company is slated to report quarterly results on Apr 25.

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