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NVR Gains 35% YTD: Will Rate Cut Push the Stock to New Highs?
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NVR, Inc.’s (NVR - Free Report) stock gained 34.9% in the year-to-date period compared with the Zacks Building Products - Home Builders industry’s 25.2% growth, the Zacks Construction sector’s 22% rise and the S&P 500’s 20.8% rally. The stock has been rallying on a recent rate cut by the Federal Reserve, announced last month.
NVR, which engages in the construction and sale of single-family detached homes, townhomes and condominium buildings, has been benefiting from improving demand, a disciplined business model, and strong orders and backlog.
NVR’s stock also outpaced its peers like Lennar Corporation (LEN - Free Report) , D.R. Horton, Inc. (DHI - Free Report) and Meritage Homes Corporation (MTH - Free Report) in the same time frame.
Image Source: Zacks Investment Research
Let’s see in detail why NVR stock is a buy for investors.
Low consumer confidence, reduced spending on private residential construction, and rising material costs are impacting the industry's outlook. Consumers are becoming more cautious with their disposable income, focusing on essential purchases.
Nonetheless, the Fed's recent rate cut, coupled with a housing shortage and strong demand for homeownership, is expected to spur growth for industry players. In the September meeting, the Fed agreed to cut its benchmark interest rate by 50 basis points to a range of 4.75% to 5%.
Image Source: Freddie Mac
A significant drop in mortgage rates has already triggered a sharp increase in mortgage applications. In the recent Primary Mortgage Market Survey report published by Freddie Mac, the 30-year, fixed-rate mortgage (30-Yr FRM) stood at 6.12% for the week that ended on Oct. 3, 2024, a slight increase from the week that ended on Sept. 26, 2024. Last week saw the lowest rate of 6.08% in the past two years, marking a 1.71 percentage point drop from 7.79% 30-Yr FRM recorded for the week that ended on Oct. 26, 2023.
Moreover, companies are adapting by introducing buydown programs, balancing speculative building with build-to-order strategies, and addressing diverse buyer needs. Emphasis on cost control, increased operating leverage, balanced models, asset-light strategies, and strategic acquisitions is helping them navigate the market challenges. See more: 5 Homebuilding Stocks Ready to Soar Defying Industry Challenges)
NVR's Lot Acquisition Strategy Bodes Well
Unlike other homebuilders, NVR focuses solely on selling and building high-quality homes by acquiring finished building lots, avoiding the risks of land ownership and development in a cyclical industry. NVR purchases finished lots from third-party land developers under Lot Purchase Agreements, which limit the company's financial liability to the deposit in case of failure. This lot acquisition strategy allows NVR to bypass the financial burdens and risks tied to land ownership and development, giving it operational efficiencies and a competitive advantage. By the end of the second quarter of 2024, NVR controlled 149,700 lots, a 14.8% increase from 130,400 in the same period last year.
NVR’s Solid Backlog Levels Reflect Strong Demand
Amid the current housing market conditions, NVR has experienced growth in new orders. In second-quarter 2024, new orders (net of cancelations) rose 3% to 6,067 units, up from 5,905 units in the prior year. This increase in new orders reflects a notable improvement in demand trends, which has also allowed the company to boost its average selling price by 3% year over year.
As of June 30, 2024, NVR's backlog increased 3% on a unit basis compared to the same quarter last year, totaling 11,597 homes. In dollar terms, the backlog grew 6% to $5.45 billion, underscoring the company’s strong position in a competitive market.
Historical Performance, Prospect & Returns
NVR's strong financial performance is backed by solid earnings surprises in recent quarters. Its earnings per share (EPS) surpassed the consensus estimate in three of the trailing four quarters and missed on one occasion, with the average surprise being 5.6%.
Earnings estimates for 2024 have moved up to $500.67 per share from $499.77 over the past 60 days. The current-year EPS reflects 8.1% year-over-year growth on a 10.1% increase in revenues. EPS for 2025 reflects a 6.9% year-over-year increase on a 4.5% rise in revenues.
Return on Equity or ROE is an important measure to see how a company makes use of its equity and the returns are generated on it. NVR’s trailing 12-month ROE currently stands at 38.5% compared with the industry’s 16.8%.
Why NVR is a Smart Investment?
NVR’s higher settlements in the second quarter of 2024, growth in new orders and a higher average selling price of new orders position it well for the future. The company is positioned to benefit from growing trends in housing. With robust prospect and lot acquisition strategy, NVR stock is well-suited for investors looking for long-term growth in the housing space.
Technical indicators also remain favorable, with NVR trading above its 50-day moving average.
Image: Bigstock
NVR Gains 35% YTD: Will Rate Cut Push the Stock to New Highs?
NVR, Inc.’s (NVR - Free Report) stock gained 34.9% in the year-to-date period compared with the Zacks Building Products - Home Builders industry’s 25.2% growth, the Zacks Construction sector’s 22% rise and the S&P 500’s 20.8% rally. The stock has been rallying on a recent rate cut by the Federal Reserve, announced last month.
NVR, which engages in the construction and sale of single-family detached homes, townhomes and condominium buildings, has been benefiting from improving demand, a disciplined business model, and strong orders and backlog.
NVR’s stock also outpaced its peers like Lennar Corporation (LEN - Free Report) , D.R. Horton, Inc. (DHI - Free Report) and Meritage Homes Corporation (MTH - Free Report) in the same time frame.
Image Source: Zacks Investment Research
Let’s see in detail why NVR stock is a buy for investors.
Fed’s Rate Cut & Year’s Low Mortgage Rates to Heal Housing Sores
Low consumer confidence, reduced spending on private residential construction, and rising material costs are impacting the industry's outlook. Consumers are becoming more cautious with their disposable income, focusing on essential purchases.
Nonetheless, the Fed's recent rate cut, coupled with a housing shortage and strong demand for homeownership, is expected to spur growth for industry players. In the September meeting, the Fed agreed to cut its benchmark interest rate by 50 basis points to a range of 4.75% to 5%.
Image Source: Freddie Mac
A significant drop in mortgage rates has already triggered a sharp increase in mortgage applications. In the recent Primary Mortgage Market Survey report published by Freddie Mac, the 30-year, fixed-rate mortgage (30-Yr FRM) stood at 6.12% for the week that ended on Oct. 3, 2024, a slight increase from the week that ended on Sept. 26, 2024. Last week saw the lowest rate of 6.08% in the past two years, marking a 1.71 percentage point drop from 7.79% 30-Yr FRM recorded for the week that ended on Oct. 26, 2023.
Moreover, companies are adapting by introducing buydown programs, balancing speculative building with build-to-order strategies, and addressing diverse buyer needs. Emphasis on cost control, increased operating leverage, balanced models, asset-light strategies, and strategic acquisitions is helping them navigate the market challenges. See more: 5 Homebuilding Stocks Ready to Soar Defying Industry Challenges)
NVR's Lot Acquisition Strategy Bodes Well
Unlike other homebuilders, NVR focuses solely on selling and building high-quality homes by acquiring finished building lots, avoiding the risks of land ownership and development in a cyclical industry. NVR purchases finished lots from third-party land developers under Lot Purchase Agreements, which limit the company's financial liability to the deposit in case of failure. This lot acquisition strategy allows NVR to bypass the financial burdens and risks tied to land ownership and development, giving it operational efficiencies and a competitive advantage. By the end of the second quarter of 2024, NVR controlled 149,700 lots, a 14.8% increase from 130,400 in the same period last year.
NVR’s Solid Backlog Levels Reflect Strong Demand
Amid the current housing market conditions, NVR has experienced growth in new orders. In second-quarter 2024, new orders (net of cancelations) rose 3% to 6,067 units, up from 5,905 units in the prior year. This increase in new orders reflects a notable improvement in demand trends, which has also allowed the company to boost its average selling price by 3% year over year.
As of June 30, 2024, NVR's backlog increased 3% on a unit basis compared to the same quarter last year, totaling 11,597 homes. In dollar terms, the backlog grew 6% to $5.45 billion, underscoring the company’s strong position in a competitive market.
Historical Performance, Prospect & Returns
NVR's strong financial performance is backed by solid earnings surprises in recent quarters. Its earnings per share (EPS) surpassed the consensus estimate in three of the trailing four quarters and missed on one occasion, with the average surprise being 5.6%.
Earnings estimates for 2024 have moved up to $500.67 per share from $499.77 over the past 60 days. The current-year EPS reflects 8.1% year-over-year growth on a 10.1% increase in revenues. EPS for 2025 reflects a 6.9% year-over-year increase on a 4.5% rise in revenues.
Return on Equity or ROE is an important measure to see how a company makes use of its equity and the returns are generated on it. NVR’s trailing 12-month ROE currently stands at 38.5% compared with the industry’s 16.8%.
Why NVR is a Smart Investment?
NVR’s higher settlements in the second quarter of 2024, growth in new orders and a higher average selling price of new orders position it well for the future. The company is positioned to benefit from growing trends in housing. With robust prospect and lot acquisition strategy, NVR stock is well-suited for investors looking for long-term growth in the housing space.
Technical indicators also remain favorable, with NVR trading above its 50-day moving average.
Image Source: Zacks Investment Research
These positives reinforce its Zacks Rank #2 (Buy) rating, making NVR a smart addition to investors' portfolios at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.