Sales of previously owned US homes rose in July, possibly indicating that lower mortgage rates are finally stimulating sales after a sluggish spring selling season. July marked the first increase in sales in 17 months with existing home sales rising 0.6% year over year. While housing has started to turn in a positive direction, the trade war and the inverted bond yield remain headwinds for the housing market. However, the SPDR S&P Homebuilders ETF XHB has gained 29.3% YTD, outpacing the broader S&P 500’s 14.2% gain. Let’s see what homebuilding stocks have stood out from the crowd.
LGI HomesLGIH is a company that focuses on converting renters of apartments and single-family homes into homeowners by offering homes at affordable locations. The homebuilding company has skyrocketed 77.8% year-to-date. LGIH reported its second quarter results in early August and beat our earnings estimate by 12.35%. The company generated $461.8 million in revenue, jumping 10% from Q2 2018. At the end of Q2, the company now owns and controls 54,191 lots. LGIH reaffirmed their fiscal 2019 guidance of EPS between $7.00-$8.00 and believes it will have between 105-115 active selling communities.
Looking ahead to Q3, consensus estimates call for EPS to increase 26.32% to $1.92 per share on the back of a 29.66% revenue surge to $493.2 million. Positive revenue and earnings growth are projected for LGIH through fiscal 2020. The stock is currently trading right around the industry average at 11.9X its forward earnings, which can provide investors with a fair entry point into a stock that looks poised to continue its massive 2019 run. LGIH is sitting at a Zacks Rank #3 (Hold).
Meritage CorporationMTH is the eighth-largest public homebuilder in the United States. Meritage Homes builds and sells single-family homes for first-time, move-up, luxury, and active adult buyers across the Western, Southern and Southeastern United States. MTH is an additional homebuilder that has skyrocketed in 2019, up 76.9% YTD. In Q2, the company reported a 22% increase in orders, reflecting a healthy demand for entry-level homes, along with a 5% increase in closings. The company also beat earnings by 27.18% with a reported $1.31 per share. MTH’s financial services generated $4.16 million, increasing 7% from the prior year’s quarter. The company gave a fiscal 2019 guidance of $3.4-$3.6 billion in home closing revenue and 8,700-9,100 home closings. They expect yearly EPS to come in around $5.20-$5.50.
Our consensus estimates anticipate MTH to bring in $3.5 billion in fiscal 2019 and EPS of $5.26 for fiscal 2019. The company has beaten our earnings estimates three out of the past four quarters with an average EPS surprise of 13.48%. MTH is a Zacks Rank #1 (Strong Buy), and has had its estimates revised upwards the past 60 days across the board, establishing the stock as a standout in the homebuilding industry.
NVRNVR is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. The company operates in two business segments: Homebuilding and Mortgage Banking. NVR’s Q2 earnings and revenue beat our estimates by 17.59% and 6.83%, respectively, coming in at $1.8 billion and $53.09 per share.
NVR is a unique company because they use something called land-purchase agreements to acquire their buildable lots. They put down a small deposit in exchange for the right to purchase the lot. They don’t actually buy the lot itself until it has signed a purchase agreement for a home to be built, making the building process much less capital intensive. This also makes the company much more capable of successfully navigating rough markets. For example, NVR actually gained market share during the financial crisis while other homebuilders were left scrambling and selling buildable lots at fire-sale prices.
Q3 consensus estimates forecast NVR’s bottom line to rally 7.87% to $52.08 per share on the back of a slight revenue increase of 0.17% to $1.81 billion. NVR’s stock has surged 50.8% this year, and earnings boast an average EPS surprise of 20.41% over the past four quarters. Earnings estimates have been revised upwards for Q3, earning the stock a Zacks Rank #2 (Buy). Falling mortgage rates, low unemployment, and upbeat July home sales make it prime time to consider adding a homebuilder to a portfolio. Furthermore, NVR’s unique business model and proven resilience to rough economic climates make it a homebuilder stock that can bolster a portfolio.
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NVR, Inc. (NVR) : Free Stock Analysis Report
Meritage Corporation (MTH) : Free Stock Analysis Report
SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
LGI Homes, Inc. (LGIH) : Free Stock Analysis Report
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