NVR’s third quarter results beat analyst estimates with gross margins of 19.1%, versus 18% expected by J.P. Morgan’s Michael Rehaut.
NVR also boasted 11% order growth, which was below Rehaut’s 12% projection. It posted a 17% increase in absorption (which was above Rehaut’s 14% estimate). Though its pricing power was limited, incentives were stable.
NVR’s orders grew 20% in the Southeast and 11% in the Mid-Atlantic, while the Northeast fell 2%.
“Looking forward, we estimate 4Q15 YOY order growth of 15%, driven by our outlook for absorption to increase 18%, partially offset by a 2% decline in average community count, resulting in our 2015 order growth estimate of 14% being unchanged,” Rehaut wrote.
On the flip-side, the builder posted lower-than-expected home building revenue.
“NVR benefitted from a moderately stronger market as well as a greater focus by the company on improving absorption and the overall sales process,” Rehaut wrote. “This was partially offset by a 5% decline in average community count, modestly below our -2% estimate, driven by continued delays in opening new communities, in part due to a greater number of option lots now requiring some additional development. Pricing was noted as being fairly stable, as demonstrated by order ASPs being roughly flat sequentially and up 1% YOY.”
Going forward, NVR’s geographic footprint is a cause for concern, but its strategy is a reason for optimism.
“We believe NVR’s valuation is fairly full on a relative basis, as we point to our outlook for only roughly in-line order growth in 2016 as well as the company’s higher exposure to the weaker Washington D.C./Virginia markets, which continues to be tempered by NVR’s strong track record during the downturn as well as continued share repurchase activity,” wrote Rehaut.
