Report
Brian Bernard
EUR 850.00 For Business Accounts Only

Morningstar | NVR's Homebuilding Revenue Grew Over 13% in 2018, but Growth in 2019 Could Prove Challenging

We've maintained our $2,390 per share fair value estimate for NVR following the firm's fourth-quarter earnings release. NVR reported good results that capped a great 2018 for the no-moat rated homebuilder. Fourth-quarter homebuilding revenue grew nearly 10% year over year to over $1.9 billion as a 12% increase in home deliveries more than offset a 2% decline in the average selling price of delivered homes. NVR's fourth-quarter homebuilding operating margin slipped 50 basis points year over year to 13.4% due to gross margin pressure. Given persistent land, labor, and building material cost pressure in 2018, we weren't surprised by NVR's margin performance, and in our view, a 13%-plus operating margin is a very solid level of profitability. NVR's full-year 2018 homebuilding revenue grew a robust 13% to just over $7 billion, and strong selling, general, and administrative expense leverage supported NVR's homebuilding operating margin, which only contracted about 10 basis points year over year to 12.8% on a full-year basis.

Investors have grown accustomed to strong revenue growth from NVR. Indeed, since the housing market bottom in 2009, we calculate that NVR has grown homebuilding revenue at over an 11% compound annual growth rate, and the firm has boasted double-digit revenue growth during six of the nine years since the bottom. However, we think it will be challenging for NVR to generate strong top-line growth in 2019 because NVR entered the new year with a 4% lower backlog value than the prior year (after an 11% decline in new orders during the fourth quarter), its average community count of 463 is the firm's lowest level since the fourth quarter of 2013, and there is more uncertainty concerning the strength of the all-important spring selling season relative to last year. That said, NVR controls almost 100,000 lots, just 5,000 shy of its all-time high at the peak of the last cycle, so we believe the firm can meaningfully increase its community count over time.
Underlying
NVR Inc.

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.

Provider
Morningstar
Morningstar

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.

We have operations in 27 countries.

Analysts
Brian Bernard

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