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Why Is NVR (NVR) Up 14.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for NVR (NVR). Shares have added about 14.1% 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 catalysts.

NVR Q1 Earnings Top Estimates, Revenues Down Y/Y

NVR, Inc.’s first-quarter 2020 earnings topped the Zacks Consensus Estimate. The company noted that the coronavirus significantly impacted all facets of the business. It remains concerned about its future operational and financial performance due to uncertainty regarding the extent and timing of disruption to the business from COVID-19.  

In the quarter under review, the company reported earnings of $44.96 per share, which surpassed the consensus mark of $42.01 by 7%. However, the reported figure declined 6% from the prior-year figure.

Total revenues (Homebuilding & Mortgage Banking fees combined) amounted to $1.58 billion during the reported quarter. The figure declined 6% on a year-over-year basis.

Segment Details

Homebuilding: Revenues in the segment came in at $1.56 billion, down 5.3% from the year-ago level. Cancellation rate was 21% in the quarter compared with 14% in the year-ago period, due to increase in sales cancellations during March, thanks to the impact of the COVID-19 pandemic. Settlements fell 6% year over year to 4,230 units.

New orders during the quarter fell 2% from the prior year to 5,015 units. However, average sales price of new orders inched up 1% from the prior-year quarter to $372,300.

As of Mar 31, 2020, backlog (homes sold but not settled) was flat with the year-ago quarter’s 9,018 units and $3.44 billion on a dollar basis. The backlog includes 1,178 units in Pennsylvania and New York, where governments have currently put some restrictions on residential construction. Notably, the company believes that this backlog may experience a higher level of cancellations due to the company’s inability to deliver these units on time.

Gross margin contracted 170 basis points (bps) to 16.8%. The downside was mainly due to contract land deposit impairments of approximately $36,400,000, or 234 bps, as a percentage of revenues.

Mortgage Banking: Mortgage banking fees decreased 38.8% year over year to $26.8 million. Moreover, mortgage closed loan production totaled $1.13 billion, down 1% year over year due to reduction in fair value of mortgage servicing rights as a result of disruptions in the economy.

Financials

At the end of the first quarter, NVR had cash and cash equivalents for Homebuilding and Mortgage Banking of $1,078.6 million and $13.4 million compared with $1,110.9 million and $29.4 million, respectively, at 2019-end.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -16.21% due to these changes.

VGM Scores

Currently, NVR has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

NVR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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