NVR, Inc. (NVR) is one of the largest homebuilding and mortgage banking companies in the U.S. It operates through its Homebuilding and Mortgage Banking segments. The company engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings under names like Ryan Homes, NVHomes, and Heartland Homes.
In the third quarter of 2024, NVR’s new orders increased to 5,650 units, as compared to 4,746 units in the third quarter of 2023, indicating increase of 19%. The average sales price of new orders in the third quarter came in at $450,700. Settlements in the third quarter also saw growth of 5% to 5,908 units versus 5,606 units during the third quarter of 2023.
Although the interest rates are still at high levels, the recent Federal Reserve interest rate cuts have offered a sigh of relief and are contributing to mortgage banking growth. The larger-than-usual half-percentage point cut will likely put a pause on the slowdown in the housing market.
Further, in September, the U.S. single-family homebuilding surged to a five-month high of 2.7%, whereas building permits for future construction for single-family housing was up 0.3%. Besides, the Fed rate cut led to a drop in the mortgage rate, and the promise of more rate cuts could also encourage new construction projects and purchases in the future.
Therefore, amid these trends, the prospects of NVR in the upcoming periods are promising, with lower borrowing costs attracting consumers to purchase houses and new construction. Also, the rapidly growing population and strong economic growth are leading to tight inventory, offering growth opportunities for the company.
Shares of NVR have gained 21.6% over the past six months and 45.9% over the past year to close its last trading session at $9,179.61. However, over the past month, the stock has plunged 4.4%.
Let’s look at factors that could influence NVR’s performance in the upcoming months.
Recent Developments
On April 25, 2024, NVR announced the signing of an agreement with La Cité Development, a leading real estate development corporation, to address much-needed housing solutions by adding 180 units of single-family homes to a large-scale redevelopment of 32.94 acres in Poppleton, West Baltimore, for around $800 million.
This mixed-income development, representing an investment of $60 million, will consist of 48 condo units and 132 townhomes on seven acres.
Mixed Financials
During the third quarter that ended September 30, 2024, NVR reported Homebuilding revenues of $2.68 billion, up 6.6% from the prior year’s quarter, and its Homebuilding operating income grew 0.6% from the year-ago value to $510.52 million. However, its Mortgage banking fees were down 2.3% year-over-year to $55.31 million.
Furthermore, the company’s homebuilding operating income just grew marginally from the year-ago value to $510.52 million. Also, NVR’s net income and EPS totaled $429.32 million and $130.50, indicating slight decreases from the prior-year quarter, respectively.
As of September 30, 2024, NVR’s cash and cash equivalents and total assets came in at $2.47 billion and $6.49 billion, respectively.
Favorable Analyst Estimates
Analysts expect NVR’s revenue for the fourth quarter (ending December 2024) to come in at $2.79 billion, indicating an increase of 16.7% year-over-year. The consensus EPS estimate of $130.83 for the same period reflects a 7.6% year-over-year improvement.
For the fiscal year (ending December 2024), the company’s revenue and EPS are anticipated to grow 11% and 6.3% year-over-year to $10.34 billion and $492.26, respectively. In addition, Street expects its revenue and EPS for the fiscal year 2025 to grow 6.4% and 7.1% from the prior year to $11 billion and $527.38, respectively.
Robust Profitability
NVR’s trailing-12-month net income margin of 15.90% is 257.8% higher than the 4.44% industry average. Its trailing-12-month EBIT margin of 19.98% is 148.4% higher than the industry average of 8.04%. And the stock’s trailing-12-month Levered FCF margin of 9.82% is considerably higher than the industry average of 4.83%.
Furthermore, the stock’s ROCE, ROTC, and ROTA of 38.72%, 24.40%, and 25.19% are favorable compared to the 10.91%, 6.14%, and 3.97% industry average, respectively.
Elevated Valuation
In terms of forward non-GAAP P/E, NVR is currently trading at 18.65x, 7.4% higher than the industry average of 17.37x. Also, the stock’s forward EV/Sales and Price/Sales of 2.58x and 2.72x are considerably higher than the industry average of 1.28x and 0.96x, respectively.
Additionally, the stock’s forward EV/EBITDA and Price/Cash Flow of 13.25x and 19.57x are 26.3% and 69.4% higher than the industry averages of 10.49x and 11.56x, respectively.
POWR Ratings Reflect Uncertainty
NVR’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NVR has an A grade for Quality, consistent with its higher-than-industry profitability.
However, it has a D grade for Value, justified by higher-than-industry valuation.
NVR is ranked #9 among the 22 stocks in the Homebuilders industry.
Beyond what I have stated above, we have also given NVR grades for Stability, Momentum, Growth, and Sentiment. Get access to all the NVR ratings here.
Bottom Line
NVR reported its earnings for the third quarter of 2024, showcasing robust revenue growth for the period. Also, the company’s long-term prospects appear robust, driven by a strong geographic market presence and wide scope of market expansion amid mortgage banking growth.
Despite solid revenue growth, NVR grapples with high SG&A expenses and lower net income. Moreover, as the company continues to expand its operations, it encounters hurdles related to economic uncertainties and increased cancellation rates.
Given NVR’s elevated valuation and mixed financial performance, waiting for a better entry point in this stock seems prudent.
Stocks to Consider Instead of NVR Inc. (NVR)
Given its near-term uncertain prospects, the odds of NVR outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Homebuilders industry instead:
Skanska AB (SKBSY)
Sekisui House Ltd. ADR (SKHSY)
Taylor Morrison Home Corporation (TMHC)
For exploring more A and B-rated homebuilders stocks, click here.
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NVR shares were unchanged in after-hours trading Friday. Year-to-date, NVR has gained 28.93%, versus a 24.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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