NVR (NVR) Down 4.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for NVR (NVR). Shares have lost about 4.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NVR due for a breakout? 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's Q3 Earnings Beat Expectations, Up Y/Y, Orders Increase

NVR, Inc. reported solid results in third-quarter 2019. The company’s earnings not only surpassed the Zacks Consensus Estimate but also improved on a year-over-year basis.

The country’s leading homebuilding and mortgage banking company reported earnings of $56.11 per share, which surpassed the consensus mark of $51.78 by 8.4%. Also, the reported figure increased 16.2% from the prior-year quarter.

Total revenues (Homebuilding & Mortgage Banking fees combined) came in at $1.91 billion during the reported quarter, up 3% year over year on higher deliveries, partially offset by lower selling prices.

Segment Details

Homebuilding: In the reported quarter, Homebuilding segment’s revenues totaled $1.87 billion, up 11% from the year-ago period. Settlements grew 8% year over year to 5,124 units. However, average settlement price was $365.5k, reflecting a decrease of 1.3% year over year.

New orders during the quarter increased 11% from the prior-year period to 4,766 units. However, average sales price of new orders declined 1% from the prior-year quarter to $369,200, mainly due to a continued shift to smaller and lower-priced products. A shift to markets with lower average sales prices added to the woes.

In the quarter under review, gross margin improved 40 basis points to 19%. Also, income before tax increased 10% from the year-ago quarter. Selling, general and administrative expenses were $110 million, up 0.5% from the prior-year quarter.

As of Sep 30, 2019, backlog (homes sold but not settled) declined 6% from the year-ago period to 9,172 units and 7% (on a dollar basis) to $3.4 billion. At the end of the reported quarter, average community count was 473, down from the prior-year level of 479 units.

Mortgage Banking:  Mortgage banking fees fell 12% year over year to $37.9 million due to the timing of loan sales and a decrease in the fair value measurement adjustment. Moreover, mortgage closed loan production totaled $1.37 billion, up 10% year over year.

Financials

As of Sep 30, 2019, NVR had cash and cash equivalents for Homebuilding and Mortgage Banking of $1,068 million and $26.8 million compared with $688.8 million and $23.1 million, respectively, at 2018-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, NVR has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise NVR has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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