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Category: Stock Market and NVR (NVR)
Date: 21 October 2020 Stock Price of NVR: $4399.77 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of NVR, one of the leading homebuilders in America. Revenue for the 3rd quarter 2020 came in at $1.92 billion and the group reported net income of $256.5 million for the quarter which is 14.6% higher than the same quarter of the previous year.
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About NVR
Headquartered in Reston, Virginia, NVR, Inc. is one of America’s leading homebuilders. The Company serves homebuyers in thirty-two metropolitan areas in fourteen states, including, Maryland, New York, North Carolina, Virginia, Ohio, Indiana, Illinois, South Carolina, Pennsylvania, Tennessee, Florida, Delaware, West Virginia and New Jersey, as well as Washington DC.
Homebuilding
The Company’s homebuilding operations sells and constructs homes under three brand names:
Ryan Homes – Founded in 1948 in Pittsburgh, Pennsylvania, to provide housing in the expanding post-war economy, Ryan Homes has constructed more than 400,000 homes. Ryan offers a variety of home-buying options to suit a broad spectrum of consumer needs, whether single-family, townhouse, or garden condominium.
NVHomes - Offering additional architectural details and designer elements tailored to suit the most discriminating of tastes, NVHomes has earned a reputation for quality and value. Established in 1980 in Northern Virginia, NVHomes now operates in Virginia, Maryland, Delaware, and Pennsylvania.
Heartland Homes - Founded in 1984, Heartland Homes is a leading homebuilder in Pittsburgh, Pennsylvania, and markets primarily luxury homes. Supporting the construction operations is our Building Products operation. With manufacturing facilities in Maryland, Pennsylvania, New York, New Jersey, North Carolina, Ohio and Tennessee, this division supplies structural building components that are produced to exacting standards in a controlled environment, and then delivered to the job site to reduce waste and improve efficiency.
Homebuilding
The Company’s homebuilding operations sells and constructs homes under three brand names:
Ryan Homes – Founded in 1948 in Pittsburgh, Pennsylvania, to provide housing in the expanding post-war economy, Ryan Homes has constructed more than 400,000 homes. Ryan offers a variety of home-buying options to suit a broad spectrum of consumer needs, whether single-family, townhouse, or garden condominium.
NVHomes - Offering additional architectural details and designer elements tailored to suit the most discriminating of tastes, NVHomes has earned a reputation for quality and value. Established in 1980 in Northern Virginia, NVHomes now operates in Virginia, Maryland, Delaware, and Pennsylvania.
Heartland Homes - Founded in 1984, Heartland Homes is a leading homebuilder in Pittsburgh, Pennsylvania, and markets primarily luxury homes. Supporting the construction operations is our Building Products operation. With manufacturing facilities in Maryland, Pennsylvania, New York, New Jersey, North Carolina, Ohio and Tennessee, this division supplies structural building components that are produced to exacting standards in a controlled environment, and then delivered to the job site to reduce waste and improve efficiency.
Overview of NVR's 3rd quarter 2020 earnings report
Data below refers to the 3rd quarter data unless specified otherwise:
New ordered units for the 3 months ended September 2020
- Revenues: $1.92 billion (up from $1.873 billion for the same period of the previous year)
- Revenues increased by 2.5% over the last 12 months
- Cost of sales: $1.536 billion (up from $1.518 billion for the same period of the previous year)
- Cost of sales increased by 1.18% over the last 12 months
- Net earnings: $256.466 million (up from $223.787 million for the same period of the previous year)
- Diluted earnings per share: $69.19 (up from $60.94 for the same period of the previous year)
- PE ratio:21.4
- Diluted weighted-average shares outstanding: 3.939 million (down from 3.988 million for the same period of the previous year)
- Cash and cash equivalents: $2.539 billion
- Cash and cash equivalents per share: $644
- Cash and cash equivalents makes up 14.7% of NVR's market capital
- Cash and cash equivalents makes up 27.7% of NVR's total assets
- Inventories: $1.496 billion
- Inventories makes up 46.1% of NVR's total assets
- Stockholders equity in NVR: $2.918 billion
- Stockholders equity per share: $740.80
- So NVR is trading a 5.93 times its stockholders equity which is outside the expected range of between 2 and 4 which most firms ten to trade at.
- For some perspective the average price to book value of firms in the S&P500 is 3.7
New ordered units for the 3 months ended September 2020
- Mid Atlantic: 2 592
- North East: 542
- Mid East: 1 664
- South East: 1 903
- Total: 5 180
NVR's management commentary on their 3rd quarter 2020 earnings
RESTON, Va., Oct. 20, 2020 /PRNewswire/ -- NVR, Inc. (NYSE: NVR), one of the nation's largest homebuilding and mortgage banking companies, announced net income for its third quarter ended September 30, 2020 of $256,466,000, or $65.11 per diluted share. Net income and diluted earnings per share for the third quarter ended September 30, 2020 increased 15% and 16%, respectively, when compared to 2019 third quarter net income of $223,787,000, or $56.11 per diluted share. Consolidated revenues for the third quarter of 2020 totaled $1,990,012,000, which increased 4% from $1,911,264,000 in the third quarter of 2019.
Homebuilding
New orders in the third quarter of 2020 increased by 40% to 6,681 units, when compared to 4,766 units in the third quarter of 2019. New orders have been favorably impacted by robust demand attributable to historically low mortgage interest rates and lower resale inventory levels. The average sales price of new orders in the third quarter of 2020 was $384,200, an increase of 4% when compared with the third quarter of 2019. The cancellation rate in the third quarter of 2020 decreased to 12% compared to 16% in the third quarter of 2019. Settlements increased in the third quarter of 2020 to 5,180 units, which was 1% higher than the third quarter of 2019. Our backlog of homes sold but not settled as of September 30, 2020 increased on both a unit and dollar basis by 32% and 37%, respectively, to 12,124 units and $4,655,510,000 compared to the respective backlog unit and dollar balances as of September 30, 2019. Homebuilding revenues of $1,920,751,000 in the third quarter of 2020 increased 3% compared to homebuilding revenues of $1,873,331,000 in the third quarter of 2019. Gross profit margin in the third quarter of 2020 increased to 20.0%, compared to 19.0% in the third quarter of 2019. Income before tax from the homebuilding segment totaled $269,645,000 in the third quarter of 2020, an increase of 10% when compared to the third quarter of 2019.
Mortgage Banking
Mortgage closed loan production in the third quarter of 2020 totaled $1,382,060,000, an increase of 1% when compared to the third quarter of 2019. Income before tax from the mortgage banking segment totaled $51,812,000 in the third quarter of 2020, an increase of 142% when compared to $21,400,000 in the third quarter of 2019. This increase is due primarily to an increase in secondary marketing gains on sales of loans.
Homebuilding
New orders in the third quarter of 2020 increased by 40% to 6,681 units, when compared to 4,766 units in the third quarter of 2019. New orders have been favorably impacted by robust demand attributable to historically low mortgage interest rates and lower resale inventory levels. The average sales price of new orders in the third quarter of 2020 was $384,200, an increase of 4% when compared with the third quarter of 2019. The cancellation rate in the third quarter of 2020 decreased to 12% compared to 16% in the third quarter of 2019. Settlements increased in the third quarter of 2020 to 5,180 units, which was 1% higher than the third quarter of 2019. Our backlog of homes sold but not settled as of September 30, 2020 increased on both a unit and dollar basis by 32% and 37%, respectively, to 12,124 units and $4,655,510,000 compared to the respective backlog unit and dollar balances as of September 30, 2019. Homebuilding revenues of $1,920,751,000 in the third quarter of 2020 increased 3% compared to homebuilding revenues of $1,873,331,000 in the third quarter of 2019. Gross profit margin in the third quarter of 2020 increased to 20.0%, compared to 19.0% in the third quarter of 2019. Income before tax from the homebuilding segment totaled $269,645,000 in the third quarter of 2020, an increase of 10% when compared to the third quarter of 2019.
Mortgage Banking
Mortgage closed loan production in the third quarter of 2020 totaled $1,382,060,000, an increase of 1% when compared to the third quarter of 2019. Income before tax from the mortgage banking segment totaled $51,812,000 in the third quarter of 2020, an increase of 142% when compared to $21,400,000 in the third quarter of 2019. This increase is due primarily to an increase in secondary marketing gains on sales of loans.
Other Matters - COVID-19
The COVID-19 pandemic has had a significant impact on all facets of our business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees, customers and trade partners. We are currently able to operate in all of the markets we serve. In each of our markets, we continue to operate in accordance with the safety guidelines issued by the Centers for Disease Control and Prevention as well as state and local guidelines. There is uncertainty regarding the extent and timing of disruption to our business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance including the impact of future developments such as the duration and spread of COVID-19, corresponding governmental actions, and the impact of such on our employees, customers and trade partners.
The COVID-19 pandemic has had a significant impact on all facets of our business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees, customers and trade partners. We are currently able to operate in all of the markets we serve. In each of our markets, we continue to operate in accordance with the safety guidelines issued by the Centers for Disease Control and Prevention as well as state and local guidelines. There is uncertainty regarding the extent and timing of disruption to our business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance including the impact of future developments such as the duration and spread of COVID-19, corresponding governmental actions, and the impact of such on our employees, customers and trade partners.
NVR (NYSE: NVR) stock price history over the last 5 years
The image below, obtained from Google, shows the stock price history of NVR over the last 5 years. And it's been a very good time for NVR stockholders. 5 years ago the stock was trading at around $1670 a stock and its currently trading at $4399.70 a stock. That's excellent return of 167.9% provided to NVR stockholders over the last 5 years.
The stock of NVR s trading at a lot closer to its 52 week high of $4530 than it is to its 52 week low of $2043.01, which to us is a clear indication that the short term sentiment and momentum towards NVR's stock is very positive.
The stock of NVR s trading at a lot closer to its 52 week high of $4530 than it is to its 52 week low of $2043.01, which to us is a clear indication that the short term sentiment and momentum towards NVR's stock is very positive.
NVR (NVR) vs KB Homes (KBH) vs Beazer Homes (BZH) stock over the last 5 years
The image below shows the stock price performance of NVR (NVR) vs KB Homes (KBH) vs Beazer Homes (BZH) stock over the last 5 years. While all three are well known home builders in the USA, their stock price trends and returns provided over the last 5 years are very different. The summary below shows the stock price returns of the three home builders over the last 5 years, sorted from best to worst performer:
So KB Homes stock was by far the best performer over the last 5 years, while the stock of Beazer Homes was by far the worst performer of the three home builders over the last 5 years.
- KB Homes: 207.7%
- NVR: 167.9%
- Beazer Homes: 2.83%
So KB Homes stock was by far the best performer over the last 5 years, while the stock of Beazer Homes was by far the worst performer of the three home builders over the last 5 years.
Recent coverage of NVR
The extract below covers the latest news regarding NVR joining the S&P 500 as obtained from Pulse2/com
The stock price of NVR, Inc. (NYSE: NVR) has received a price target increase from $4,650 to $5,300 from JPMorgan analyst Michael Rehaut. And Rehaut is reiterating an “Overweight” rating.
In a research note, Rehaut wrote that homebuilders have a “solid amount of additional upside potential left in the tank over the next 15 months” despite the industry is up 38% year-to-date. There was also an “impressive” demand rebound after the early days of the pandemic.
In the report, it was revealed that single-family housing starts are currently only approaching their long-term average after 13 years of “being below 1.0M.” Rehaut is expecting “solid growth” over the next two years to be driven by low-interest rates, a recovering job market, improved consumer confidence, tight supply, and solid household formation.
How Does NVR Operate?
NVR has a business model that is different from other home builders. This is what helped the company navigate through the housing crisis between 2008 and 2010. NVR uses options for land rather than purchasing it. Many other homebuilders acquire large parcels of land with hopes of buying it later. And if that homebuilder has major debts and liabilities in the short-term, they can end up insolvent.
Read the full article here
The stock price of NVR, Inc. (NYSE: NVR) has received a price target increase from $4,650 to $5,300 from JPMorgan analyst Michael Rehaut. And Rehaut is reiterating an “Overweight” rating.
In a research note, Rehaut wrote that homebuilders have a “solid amount of additional upside potential left in the tank over the next 15 months” despite the industry is up 38% year-to-date. There was also an “impressive” demand rebound after the early days of the pandemic.
In the report, it was revealed that single-family housing starts are currently only approaching their long-term average after 13 years of “being below 1.0M.” Rehaut is expecting “solid growth” over the next two years to be driven by low-interest rates, a recovering job market, improved consumer confidence, tight supply, and solid household formation.
How Does NVR Operate?
NVR has a business model that is different from other home builders. This is what helped the company navigate through the housing crisis between 2008 and 2010. NVR uses options for land rather than purchasing it. Many other homebuilders acquire large parcels of land with hopes of buying it later. And if that homebuilder has major debts and liabilities in the short-term, they can end up insolvent.
Read the full article here
NVR Inc. (NYSE: NVR) latest stock valuation
So based on NVR Inc (NYSE; NVR) latest earnings report what do we value the group's stock at? Based on their earnings report our valuation models provides a target (full value) price for the stock of NVR Inc at $4 190. We therefore believe that the stock of NVR is overvalued
We usually recommend that long term or fundamental investors enter into a stock at least 10% below our target price (full value price), which in this case is $4 190, We therefore see a good entry point into the stock of NVR at $3 771. Since the stock of NVR is trading well above our suggested entry point we would not advise investors to buy into the stock of NVR at this point in time. We expect the stock of NVR to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
We usually recommend that long term or fundamental investors enter into a stock at least 10% below our target price (full value price), which in this case is $4 190, We therefore see a good entry point into the stock of NVR at $3 771. Since the stock of NVR is trading well above our suggested entry point we would not advise investors to buy into the stock of NVR at this point in time. We expect the stock of NVR to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of NVR Inc
The 4th quarter 2020 earnings report of NVR Inc is expected to be released late January 2021