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NVR Enhances Shareholder Value

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The board of NVR, Inc. (NVR - Free Report) has authorized the repurchase of $300 million worth of shares, as it had done last year in December. NVR has repurchased shares $0.3 million shares in the second quarter 2013, reported on Jul 22. NVR now has $4.6 million worth of shares remaining in its share buyback program.

The share buyback program helps the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price and reflect the company’s confidence in its fundamentals.

The company, which builds homes under trade names such as Ryan Homes and Fox Ridge Homes, posted earnings growth of 13% to $10.11 per share in the second quarter of 2013. The earnings upside was backed by top-line growth, which was fueled by the favorable situation in the housing market. However, earnings missed the Zacks Consensus Estimate of $12.38 per share.

Consolidated revenues increased 31% to $1 billion in the quarter driven by homebuilding revenues. It also beat the Zacks Consensus Estimate of $988 million. The company witnessed solid growth in new orders and backlog of homes sold in the second quarter. Though the cancellation rate of 13.8% improved from 16.3% last year, it performed poorly from 13.2% in the first quarter of 2013.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. Ryland, like other homebuilders such as Lennar Corporation (LEN - Free Report) , PulteGroup Inc. (PHM - Free Report) , and D.R. Horton, Inc. (DHI - Free Report) , has been gaining momentum from the strong recovery of the U.S. housing market. Recent comments by Federal Reserve Chairman Ben Bernanke to keep interest rates low for some time provided further momentum to the stock and the housing industry, in general.

It is also seen that the demand for luxury homes is very high. Therefore adequate product introduction is necessary in order to maintain the required level of inventory to meet the growing demand for homes. We like NVR’s initiative to constantly introduce new products. With frequent introduction of products, NVR will be able to capitalize on the improving housing market. However, we would prefer to stay on the sidelines as the housing market is still in the recovery stage and the rest of the macroeconomic parameters are on a slow growth trajectory. NVR holds a Zacks Rank #3 (Hold).

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