NVR Q3 Earnings to Benefit From Solid Homebuilding Business

NVR, Inc.’s NVR third-quarter 2019 results are expected to show a year-over-year increase in earnings and revenues, courtesy of strong Homebuilding segment and solid housing fundamentals. However, rising land and labor costs are expected to have weighed on its margins.

In the second quarter, the company’s top and bottom lines grew 1% and 8.2% year over year, respectively. Moreover, its earnings surpassed the Zacks Consensus Estimate by 17.5%. The company has a strong earnings surprise history, having surpassed analysts’ expectations in nine of the last 10 quarters. The trend is likely to have continued in third-quarter 2019 as well.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for earnings for the quarter to be reported is pegged at $51.78 per share, indicating an increase of 7.3% from the year-ago period. The consensus estimate for revenues is pegged at $1.81 billion, suggesting a marginal increase from the year-ago period.

 

NVR, Inc. Price and EPS Surprise

 

NVR, Inc. Price and EPS Surprise

NVR, Inc. price-eps-surprise | NVR, Inc. Quote

Key Factors

NVR’s focus on solid business model and strong housing market fundamentals are expected to have benefited the to-be-reported quarter. Declining mortgage rates and moderate home prices are expected to have strengthened its performance in the third quarter.

NVR’s solid business model is likely to have contributed to its performance. Unlike other homebuilders, NVR’s sole business is selling and building quality homes by typically acquiring finished building lots, without the risk of owning and developing land in a cyclical industry.

This strategy has been allowing it to gain efficiencies and a competitive edge over the last few quarters, and are expected to have benefitted the third quarter as well.

The Zacks Consensus Estimate for the company’s Homebuilding revenues is currently pegged at $1,762 million, implying a 2.6% decline from the year-ago reported figure but a sequential improvement of 0.3%.

However, land and labor costs might have threatened its performance during the quarter. Labor shortages resulted in higher wages and land prices inflated due to limited availability in the quarter. These headwinds are expected to have been reflected in the to-be-reported quarter’s performance.

Again, the consensus estimate for the homebuilding operating income indicates 2.2% year-over-year decline but 2.3% sequential improvement.

Here is What Our Quantitative Model Predicts:

Our proven model shows that NVR is likely to beat estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat the Zacks Consensus Estimate. That is not the case here, as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NVR currently carries a Zacks Rank #3 and has an Earnings ESP of +4.87%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Other Stocks to Consider

Here are some other companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Meritage Homes Corporation MTH has an Earnings ESP of +1.12% and carries a Zacks Rank #1.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +1.14% and holds a Zacks Rank #2.

Masco Corporation MAS has an Earnings ESP of +0.53% and a Zacks Rank #3.

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