Will Lower Mortgage Rates Aid NVR to Post Higher Q3 Earnings?

NVR, Inc.’s NVR third-quarter 2020 earnings and revenues are expected to have registered an improvement on a year-over-year basis.

In the last reported quarter, the company’s earnings and revenues missed the Zacks Consensus Estimate by 5.3% and 3.5%, respectively. On a year-over-year basis, earnings and revenues decreased 19.9% and 10%, respectively, as the COVID-19 outbreak had a significant impact on all facets of its busines.

Nonetheless, the company has a strong earnings surprise history, having surpassed analysts’ expectations in 12 of the trailing 14 quarters.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased 1.3% to $62.01 over the past seven days. The estimated figure indicates an increase of 10.5% from the year-ago quarter. The consensus mark for revenues is pegged at $2 billion, suggesting a 7% increase from the year-ago reported figure of $1.87 billion.

NVR, Inc. Price and EPS Surprise

NVR, Inc. Price and EPS Surprise

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

Key Factors to Note

NVR’s third-quarter Homebuilding revenues (accounting for 97.7% of total revenues) are expected to have increased from the year-ago level, buoyed by strong housing market fundamentals backed by lower borrowing costs.

The improved sales trends can be attributed to solid monthly housing sales data. Markedly, pending home sales, new home sales and existing home sales rose 8.8%, 4.8% and 2.4% in August. Robust fundamentals of the U.S. housing industry have been a boon for NVR and other homebuilding stocks like D.R. Horton DHI, PulteGroup PHM, Meritage Homes Corporation MTH, as well as others. Recently, Meritage Homes announced in September that it has been experiencing unprecedented demand for homes, as is evident from 73% year-over-year growth in total orders for the July-August period. Importantly, the momentum continued in September as well.

Also, for NVR, more demand for affordable housing from multiple demographic groups is likely to have given a boost to order growth in the third quarter. The company has been strategically shifting to smaller and lower-priced products to attract more customers.

However, land and labor costs have been a pressing concern for NVR. This is likely to exert pressure on the company’s third-quarter results as well. Labor shortages resulted in higher wages and limited availability, in turn inflating land prices in the quarter.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for NVR in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat. This is exactly the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of +6.79%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, NVR carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
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