NVR to Report Q4 Earnings: What's in Store for the Stock?
NVR, Inc. NVR is expected to report fourth-quarter 2017 results on Jan 24. A healthy housing industry and strong demand trends should drive the company’s performance.
Factors At Play
Much like other homebuilders, NVR is positioned to gain traction on the current positive housing scenario. Steady job and wage growth, a recovering economy, historically-low mortgage rates, rising rentals and rapidly increasing household formation point at strong demand.
Homebuilding revenues increased 10.1% year over year in the first three quarters of 2017, primarily on a 7.8% year-over-year increase in the number of settled units. The trend is expected to continue in the to-be-reported quarter as is evident from the company’s solid backlog. As of Sep 30, 2017, backlog of homes increased on a unit basis by 16% and on a dollar basis by 15% to $3.44 billion. Notably, the Zacks Consensus Estimate for total revenues is pegged at $1.98 billion, implying a year-over-year rise of 15.3%.
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 its 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 230 basis points (bps) in the third quarter, 220 bps in the second quarter and 30 bps in the first quarter of 2017. The trend is expected to be maintained in the quarter to be reported as well.
For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $48.95 per share, reflecting a 29.5% year-over-year increase. The company also surpassed estimates in all of the last four quarters, with the average surprise being 17.3%.
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 is listed below —
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.74%. 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 #2 increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.
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 construction stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.
Potlatch PCH has an Earnings ESP of +0.29% and boasts a Zacks Rank #1. The company is set to report quarterly results on Jan 29.
D.R. Horton DHI has an Earnings ESP of +4.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is set to report quarterly results on Jan 31.
Louisiana-Pacific LPX has an Earnings ESP of +6.90% and a Zacks Rank #2. The company is expected to report quarterly results on Feb 2.
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