Like a lot of homebuilders, NVR delivered its best financial
performance in years in 2013 as it benefited from an improving
macro-environment and pent-up demand from buyers.
The challenge now is maintaining a robust growth pace this
year asNVR (
) and other builders run up against tougher year-over-year
comparisons and a couple of thorny industry issues, including the
likelihood of higher mortgage interest rates.
NVR builds single-family homes, townhouses and condominiums in
16 states and the District of Columbia, mostly in the
mid-Atlantic region. Its brands include Ryan Homes, NVHomes, Fox
Ridge Homes and Heartland Homes.
Ryan Homes and Fox Ridge Homes are mainly marketed to
first-time and first-time move-up buyers, while NVHomes and
Heartland Homes target move-up and upscale buyers.
There were enough of those buyers around to help NVR grow its
revenue 32% and EPS 56% in 2013. Both growth figures were the
company's highest in at least eight years.
Help From Home Prices
NVR is unlikely to match those numbers this year. Analysts
polled by Thomson Reuters expect the company to grow the top line
9% to $4.59 billion in 2014, and for earnings to rise 28% to
70.22 a share.
Although NVR might not see the same kind of robust sales
growth in 2014, analysts say that its bottom line should still
benefit from higher home prices and margins.
"Based on the growth in NVR's average backlog price, we expect
gross margin growth of 190 basis points year-over-year in 2014,
and we expect SG&A as a percentage of sales to be essentially
flat," Jay McCanless, analyst at Sterne Agee, wrote in a
fourth-quarter earnings report on NVR.
NVR reported Q4 results on Jan. 27. It logged an average
closing price of $365,300 for the quarter, up 10.1% from the
prior year and above McCanless' estimate for a 7.5% gain.
The company's unit backlog was in line with estimates at 4,946
homes. Average backlog prices climbed 7.8% year-over-year.
The rise in home prices helped offset flat home orders during
the quarter and also contributed to a strong improvement in
margins. NVR's gross margin came in at 19.5%, up 120 basis points
from the prior year and 210 basis points from the third
JPMorgan analyst Michael Rehaut notes that NVR benefited from
a "strong selling and pricing environment" as well as lower
Industrywide, home prices continue to show strength, though
recent sales figures present a mixed picture.
According to the S&P/Case-Shiller home price index,
released last month, the 20-city composite for November rose
13.7% year-over-year, the best gain since February 2006.
Single-family homes have recorded year-over-year price gains for
18 straight months.
The index tracks prices on a three-month rolling average, so
that November represents the three-month average of September,
October and November prices. Data for December are due on Feb.
But while rising home prices have bucked up margins and
earnings at leading builders such as NVR,Lennar (
),D.R. Horton (
) andToll Bros. (
), they might also be weighing on recent home sales.
Housing Market Ahead
In January, the National Association of Realtors said signed
contracts to purchase existing homes fell 8.7% in December, below
views for an uptick of 0.3%. Signed contracts are considered an
indicator of sales in January and February. These contracts are
at their lowest level since October 2011.
Also in January, a Commerce Department report showed that U.S.
sales of new homes fell in December for a second consecutive
month. On the upside, sales for all of 2013 climbed to the
highest level in five years.
NVR itself is expected to see a slowdown in orders in coming
Before the company's Q4 earnings report, analyst McCanless
figured NVR could grow total orders by 28.6% year-over-year in
2014 and 14.2% in 2015, primarily on much higher per-community
orders, which he likens to same-store sales growth. However, he
later lowered his total order growth estimates to 9.3% for 2014
and 7% for 2015. This "reflects 5% same-store sales growth
instead of our prior double-digit growth assumptions," McCanless
During the fourth quarter, NVR's unit orders rose 0.2%, much
better than the 15% decline expected by McCanless and the 10% dip
expected by Rehaut.
Earnings for the quarter came in at $21.15 a share, up 77%
from the prior year and well above consensus estimates for
$16.26. Revenue gained 32% to $1.22 billion, topping views for
NVR also repurchased 127,000 shares for $119 million during
"NVR reported a fairly solid quarter, particularly in terms of
gross margins," Rehaut noted.
However, he added, "we view some of the gross margin
improvement as possible 'catch up' to the industry average, as
NVR had only 50 basis points of sequential expansion from Q1 2013
to Q3 2013, well below our universe average of 230 basis
Wall Street liked NVR's performance well enough. The company's
stock price rose 5% to 1061 the day it reported Q4 results.
Shares continued to rocket over the next week-and-a-half, setting
an all-time closing high of 1,187.57 on Feb. 7. It currently
trades near 1,161.
NVR was the first of a series of builders to report earnings.
Its performance was matched by similarly strong results from
several other builders, helping IBD's Building-Residential
Commercial group climb about 11% since Jan. 24.
Analysts polled by Thomson Reuters expect NVR to report
first-quarter profit of $10.15 a share, up 48% from a year
earlier. They expect EPS growth of 62% during the second quarter,
then 17% in the third quarter and 14% in the fourth.