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Why Is NVR Up 12.4% Since the Last Earnings Report?

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A month has gone by since the last earnings report for NVR, Inc. (NVR - Free Report) . Shares have added about 12.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

NVR Beats on Q2 Earnings, Homebuilding Solid

NVR reported second-quarter 2017 earnings of $35.19 per share, surpassing the Zacks Consensus Estimate of $28.63 by 22.9%. The reported figure also rose 60% from the year-ago profit level of $22.01.

Total revenue (Homebuilding & Mortgage Banking fees) was $1.54 billion in the quarter and increased 11% 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 $1.51 billion.

New orders climbed 8% to 4,678 homes, driven by demand growth in the housing markets served by NVR. Settlements increased 9% year over year to 3,917 units. Average sales price was $377,000, down 2% from a year ago due to a shift in new orders from higher priced markets to lower priced markets.

At the end of the reported quarter, average community count was 491, up 1.7% year over year.

The company’s backlog totaled 8,813 homes (as of Jun 30, 2017), up 9% year over year. Potential housing revenues from backlog increased 10% to $3.44 billion.

Margins

Homebuilding gross margin expanded 220 basis points (bps) to 19.5%, owing to a modest improvement in pricing along with moderating construction costs.

As a percentage of homebuilding revenues, selling, general and administrative expenses (SG&A) were 6.6%, down 70 bps year over year.

Homebuilding operating margin increased 300 bps year over year to 13%.

Mortgage Banking: In the quarter, Mortgage banking fees grew 20.5% year over year to $31.8 million. Mortgage closed loan production in the quarter totaled $1.04 billion, reflecting an increase of 11% year over year.

Financials

NVR’s cash and cash equivalents totaled $518.5 million as of Jun 30, 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

 

VGM Scores

At this time, the stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Shares of NVR have a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months.


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