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NVR, Inc (NVR) Up 12.6% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for NVR, Inc. (NVR - Free Report) . Shares have added about 12.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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, Inc Beats on Q1 Earnings

NVR, one of the nation’s largest homebuilding and mortgage-banking companies, reported first-quarter 2017 earnings of $25.12 per share, surpassing the Zacks Consensus Estimate of $19.74 by 27.3%. The reported figure also rose 59% from the year-ago profit level of $15.79 per share.

Earnings were favorably impacted by the reduction in the company's effective tax rate in quarter to 22.1% from 36.8% in the first quarter of 2016. The reduction was primarily due to the company's adoption of Accounting Standard Update 2016-09 on Jan 1, 2017.

Total revenue (Homebuilding & Mortgage Banking fees) was $1.28 billion in the quarter and increased 12% year over year, driven by higher housing revenues and mortgage-banking fees.

Segment Details

Homebuilding: In the reported quarter, homebuilding revenues rose 11% year over year to $1.25 billion.

New orders climbed 7% to 4,424 homes, driven by demand growth in the housing markets served by NVR. Settlements increased 8% year over year to 3,256 units. Average settlement price was $392,600, up 5% from a year ago.

At the end of the reported quarter, average community count was 486, up 1.8% year over year.

The company’s backlog totaled 8,052 homes (as of Mar 31, 2017), up 9% year over year. Potential housing revenues from backlog increased 13% to $3.19 billion.

Margins

Gross profit margin expanded 30 basis points (bps) to 17.8%.

As a percentage of homebuilding revenues, selling, general and administrative expenses (SG&A) were 8%, down 70 bps year over year.

Homebuilding operating margin increased 100 bps year over year to 9.8%.

Mortgage Banking: In the quarter, Mortgage banking fees grew 31.1% year over year to $29.5 million. Mortgage closed loan production in the quarter totaled $843.3 million, reflecting an increase of 12% year over year.

Financials

NVR’s cash and cash equivalents totaled $492.5 million as of Mar 31, 2017, compared with $395.4 million as of Dec 31, 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

NVR, Inc. Price and Consensus

 

NVR, Inc. Price and Consensus | NVR, Inc. Quote

VGM Scores

At this time, NVR, Inc.'s stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. 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 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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