Morningstar | NVR's Asset-Light Homebuilding Model Drives Superior Returns on Invested Capital
NVR uses a capital-efficient business strategy that has allowed the firm to maximize returns on invested capital and maintain profitability and cash flow generation throughout the housing cycle. The company’s extensive use of purchase agreements to acquire presold finished lots drives capital efficiency and differentiates the company from other homebuilders that employ a significant amount of capital to directly own and develop raw land. The company prefers to build in established and contiguous markets, mainly in the eastern United States, and has avoided expansion into the more volatile western markets. NVR’s capital efficiency and market strategy have been key factors supporting the company’s success. Indeed, the company has a proven track record of generating attractive returns while protecting shareholder capital; however, we think its performance is the result of exemplary management as opposed to distinct sustainable competitive advantages.We believe NVR remains well-positioned to capitalize on an improving housing market. The housing market continues to recover from the 2009 bottom, albeit at a measured pace. We believe favorable demographics, coupled with the realization of pent-up demand, will drive a continued recovery through 2023-24, with housing starts peaking at about 1.6 million. We anticipate that first-time buyers and revitalized move-up activity will stimulate future housing demand, and NVR’s Ryan Homes and NVHomes brands stand to benefit from increased first-time and move-up new home purchases. We expect NVR to maintain its proven homebuilding strategy and continue to generate industry-leading ROICs as the housing recovery strengthens.NVR is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are constructed on a pre-sold basis. The company conducts its homebuilding activities directly. The company's homebuilding operations construct and sell single-family detached homes, townhomes and condominium buildings under three trade names: Ryan Homes, which is marketed primarily to first-time and first-time move-up buyers; and NVHomes and Heartland Homes, which are marketed primarily to move-up and luxury buyers. The company's mortgage banking operations also include separate subsidiaries that broker title insurance and perform title searches in connection with mortgage loan closings.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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