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3 Reasons Why NVR Stock Deserves a Place in Your Portfolio

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NVR, Inc. (NVR - Free Report) has been reaping benefits from robust demand for new homes at lower mortgage rates and a rising work-from-home trend in the United States. Moreover, the company’s disciplined business model, and focus on maximizing liquidity and minimizing risks are likely to generate more returns for its shareholders in the long term.

Notably, shares of NVR have gained 19.7% over the past six months compared with the Zacks Building Products - Home Builders industry’s 20.4% growth. Although, shares slightly lagged the industry’s growth, earnings estimates for the second quarter, third quarter and full-year 2021 have moved up 4.1%, 11.8% and 5.9%, respectively, over the past 60 days. This positive trend signifies analysts’ bullish sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It also has a solid earnings surprise history. NVR’s earnings surpassed the Zacks Consensus Estimate in 12 of the trailing 14 quarters.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Factors Driving Growth

Disciplined Business Model: NVR’s primary 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 company acquires finished lots at market price from various third-party land developers under the Lot Purchase Agreements. This makes sure that the legal obligation and economic loss are limited to the amount of deposit, in case of failure. The lot acquisition strategy helps the company avoid financial requirements and risks associated with direct land ownership and development. Lots controlled by the company at the end of first-quarter 2021 increased 4.9% to 108,700 from 103,600 at the end of first-quarter 2020.

Despite disruptions related to the coronavirus pandemic, NVR’s robust business fundamentals continue to drive earnings.

Robust Orders and Backlog Level: NVR’s business has been witnessing strong orders owing to high demand attributable to historically low mortgage interest rates and lower resale inventory levels. Additionally, more demand for affordable housing from multiple demographic groups has been driving growth in orders.

For first-quarter 2021, new orders increased 26% from the prior year to 6,314 units. During first-quarter 2021, average sales price for these orders inched up 10% from the prior-year quarter to $410,500. Quarter-end backlog — on a unit and dollar basis — was up 42% and 51% from the year-ago quarter to 12,791 units and $5.20 billion, respectively.

Since the recovery of the housing market scenario that began during May 2020, strong sales across all buyer groups has been observed, which continued through first-quarter 2021.

Improved Housing Market: Declining mortgage rates have been driving the U.S. residential market in recent times. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions, and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for NVR and Zacks Rank #1 companies like Meritage Homes Corporation (MTH - Free Report) , PulteGroup, Inc. (PHM - Free Report) and Toll Brothers, Inc. (TOL - Free Report) , along with others in the same industry.

Furthermore, demand for new single-family homes has seen a V-shaped recovery throughout the country, and NVR is not an exception. Moreover, the rising work-from-home trend, owing to the coronavirus outbreak, is prompting many families to choose to live in lower-cost and low-density communities, thereby boosting demand.

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PulteGroup, Inc. (PHM) - free report >>

Toll Brothers Inc. (TOL) - free report >>

NVR, Inc. (NVR) - free report >>

Meritage Homes Corporation (MTH) - free report >>