Send me real-time posts from this site at my email
Zacks

NVR to Report Q3 Earnings: What's in Store for the Stock?

The preeminent homebuilding company, NVR, Inc. NVR is scheduled to report third-quarter 2017 results on Oct 19, before the market opens.

Last quarter, NVR delivered a positive earnings surprise of 22.91%. The company also surpassed estimates in three of the last four quarters, with an average positive earnings surprise of 14.19%.

Let’s see how things are shaping up prior to the upcoming quarterly release.

Factors at Play

Much like other homebuilders, NVR is positioned to gain traction on the current positive housing scenario. Steady job and wage growth, a recovering economy, historically-low mortgage rates, rising rentals and rapidly increasing household formation point at strong demand in 2017.

The positive momentum continued in the second quarter of 2017 with the company reporting an 11% year-over-year increase in Homebuilding revenues. The trend is expected to continue in the to-be-reported quarter as is evident from its solid backlog. As of Jun 30, 2017, backlog of homes sold-but-not-settled increased on a unit basis by 9% to 8,813 and on a dollar basis by 10% to $3.44 billion.

Moreover, the company focuses on its disciplined business model, based on maximizing liquidity and minimizing risk. 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. The cash generated is thus used to expand its business while returning excess capital to its shareholders through share-repurchase programs. NVR’s strategic business efforts coupled with the positive housing scenario will continue to be favorable for the company’s future performance.

However, rising land and labor costs are a threat to margins as they limit homebuilders’ pricing power. Notably, gross margin in 2016 was down 120 basis points (bps) due to higher construction and selling-related costs year over year. However, with a modest rise in pricing and moderated construction costs, NVR was able to witness gross margin expansion of 220 bps to 19.5% in the second quarter of 2017. The first quarter also witnessed a 30-bps expansion in gross margin, which sets a forward trend in the company’s improvement in future gross margin.

For the third quarter, the Zacks Consensus Estimate for earnings is pegged at $36.11 per share, reflecting a 26.9% year-over-year increase. Meanwhile, the consensus estimate for revenues is pegged at $1.7 billion, implying a year-over-year rise of 10.1%.

Earnings Whispers

Our proven model does not conclusively show that NVR is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass estimates.

For NVR, however, this is not the case as is listed below —

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. Both the estimates are pegged at $36.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NVR’s Zacks Rank #3 increases the predictive power of ESP. However, its ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

NVR, Inc. Price and EPS Surprise

 

NVR, Inc. Price and EPS Surprise | NVR, Inc. Quote

 

Stocks to Consider

Here are a few companies in the construction sector that, according to our model, have the right combination of elements to post earnings beat this quarter:

Owens Corning OC has an Earnings ESP of +0.55% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is slated to release its quarterly results on Oct 25.

Louisiana-Pacific Corporation LPX has an Earnings ESP of +3.49% and a Zacks Rank #1. The company is scheduled to release its quarterly results on Nov 6.

Beazer Homes USA, Inc. BZH has an Earnings ESP of +1.89% and a Zacks Rank #2. The company is expected to release its quarterly results on Nov 21.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>
 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Owens Corning Inc (OC): Free Stock Analysis Report
 
Louisiana-Pacific Corporation (LPX): Free Stock Analysis Report
 
Beazer Homes USA, Inc. (BZH): Free Stock Analysis Report
 
NVR, Inc. (NVR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue