NVR, Inc. ( NVR Quick Quote NVR - Free Report) has been gaining on robust demand for new homes at lower mortgage rates, strong backlog 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 shareholders in the long term. So far this year, shares of NVR have gained 24.3% compared with the Zacks Building Products - Home Builders industry’s and the S&P 500’S rally of 18.4% and 20.5%, respectively. Notably, earnings estimates for 2021 have moved up 8.7% over the past 60 days, depicting analysts’ optimism regarding its bottom-line growth potential. 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 the trailing 14 quarters. Image Source: Zacks Investment Research Key Factors Driving Growth Robust Backlog and Order Growth: For the last few quarters, NVR has been observing strong order growth mainly backed by record-low mortgage rates along with declining material prices. Also, demand for affordable housing has been driving order growth. During second-quarter 2021, average sale price for these orders rose 20% from the prior-year quarter to $440,200. Quarter-end backlog — on a unit and dollar basis — rose 19% and 35% from the year-ago quarter to 12,627 units and $5.41 billion, respectively. Cancellation rate was 8% for the second quarter of 2021 compared with 16% in the year-ago period. Also, settlements increased 32% year over year to 5,685 units. Significant recovery in the housing market, which started in May 2020, continued through second-quarter 2021. Strategic Business Model: NVR’s main business is selling and building quality homes, and acquiring finished building lots, without the risk of owning and developing land in a cyclical industry. This business strategy is in sharp contrast to that of the other homebuilders. The lot acquisition strategy helps the company avoid financial requirements and risks associated with direct land ownership and land development. This strategy allows it to gain efficiencies and competitive edge over its peers. Lots controlled by the company at the end of second-quarter 2021 increased 11.9% to 114,100 from 102,000 at the end of second-quarter 2020. These solid business fundamentals will continue to drive earnings in amid the impact of the Delta variant of coronavirus that might eat into margins in the upcoming period. Resilient Housing industry: The U.S. housing industry is likely to retain its positive momentum on low mortgage rates, which stayed below 3% for the majority of 2021. Per Freddie Mac’s latest Primary Mortgage Market Survey, the average U.S. 30-year fixed-rate mortgage for the week ended Sep 16 declined 2 basis points (bps) to 2.86% from a week ago. Also, the 15-year fixed-rate mortgage for the week averaged 2.12%, down 7 bps from the prior week, while the five-year adjustable-rate mortgage rose 9 bps to 2.51%. 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. Since the onset of the pandemic, housing demand is on the rise as people have been looking for new homes in lower-density markets, including small metro areas, rural markets and large metro exurbs, seeking larger homes to work from. Higher ROE: NVR’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 37.4%. This compares favorably with ROE of 16.8% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds and NVR’s ability to generate profit with minimum capital usage. 3 Other Building Products - Home Builders Stocks Worth Buying
A few other stocks in the same industry which warrant a look include
Century Communities, Inc. ( CCS Quick Quote CCS - Free Report) , Tri Pointe Homes, Inc. ( TPH Quick Quote TPH - Free Report) and Persimmon Plc ( PSMMY Quick Quote PSMMY - Free Report) , each carrying a Zacks Rank #2. Century Communities, Tri Pointe and Persimmon’s earnings for 2021 are expected to rise 115.9%, 66.8% and 25%, respectively.