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NVR NVR is a homebuilder operating in 32 US metropolitan markets that is experiencing strong stock appreciation thanks to earnings upgrades, superior business economics, and housing supply tailwinds.

NVR utilizes a unique lot acquisition strategy, which limits risk in the cyclical housing market and improves Return on Equity (ROE). Additionally, the structural undersupply of housing in the US provides for an environment where NVR’s homes are a scarce product and thus in very high demand.

To the surprise of most analysts, homebuilder stocks have been on a tear this year and the Building Products – Home Builders industry currently sits in the top 2% of the Zacks Industry Rank. Over the last 10 years NVR stock has far outperformed the broad market, compounding at an annual rate of 20%.

NVR is up 29% YTD and still has bullish catalysts on the horizon. With strong earnings revisions, and a convincing technical chart pattern, NVR makes for a compelling investment.

Image Source: Zacks Investment Research

Earnings Revisions

NVR boasts a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Although current quarter earnings estimates have been mixed, all other timeframes have seen significant upgrades. FY23 earnings have been boosted by 4% over the last two months, and FY24 earnings have been revised higher by 10%.

Image Source: Zacks Investment Research

Lot Acquisition Strategy

In contrast to many other homebuilders, NVR specializes in selling and constructing high-quality homes through a unique approach. Instead of owning and developing land, NVR focuses on acquiring finished building lots from third-party land developers at market prices.

This strategy minimizes the company's financial obligations and risks, as the legal obligation and potential economic loss are limited to the deposit amount in the event of failure. By avoiding direct land ownership and development, NVR gains operational efficiencies and a competitive advantage over its peers, enabling the company to deliver quality homes while mitigating the uncertainties associated with the cyclical nature of the industry.

This strategy decreases the capital intensity of the business and thus increases the Return on Equity. NVR’s ROE currently stands at 49%, which is much higher than the industry average of 21.3%.

Secular Trends in Housing

Amidst a dramatic surge in interest and mortgage rates in the past 18 months, initial expectations pointed towards a potential crash in the housing market. Surprisingly, the correction in housing prices remained modest, with only the most overheated markets experiencing notable markdowns.