The housing market had its strongest showing in 15 years in 2021, amid record low inventory, robust demand, and sky-high home prices. Furthermore, according to the National Association of Realtors, median home prices are expected to increase 5.7% this year.
Despite rising input prices and an expected increase in mortgage rates, the housing market is expected to remain resilient due to the increased affordability of buyers amid a tight job market. Last month, the median list price of a home reached an all-time high. Also, 2022 is expected to have the highest sales level after 2021 in the last 15 years. Analysts expect home sales growth of 6.6% this year, supported primarily by millennials, who are likely to be prime first-time homebuyers in 2022.
Given this backdrop, we think investors should buy the dip in the stocks of fundamentally sound homebuilding companies NVR, Inc. (NVR) and Cavco Industries (CVCO).
NVR, Inc. (NVR)
NVR in Reston, Va., engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings. The company operates through four Homebuilding segments: Mid Atlantic; Northeast; Mid East; and Southeast. It also offers mortgage-related services to home building customers through its mortgage banking operations.
NVR’s revenue increased 17% year-over-year to $2.31 billion in the fiscal first quarter (ended March 31, 2022). Its net income grew 71% from its year-ago value to $426.10 million, while its operating income increased 98.8% year-over-year to $529.69 million over the period. The company’s EPS increased 84% from its year-ago value to $116.56.
Analysts expect NVR’s EPS and revenue to increase 53.5% and 15.9%, respectively, year-over-year to $126.56 and $2.58 billion in the fiscal second quarter (ending June 30, 2022).
Over the past month, the stock has declined 1.7% and 28.7% respectively, year-to-date to close the last trading day at $4,211.33.
NVR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. NVR also has a B grade for Growth, Sentiment, and Quality. The stock is ranked #3 of 24 stocks in the Homebuilders industry.
In addition to the POWR Ratings I have just highlighted, click here to see the NVR ratings for Value, Momentum, and Stability.
Cavco Industries, Inc. (CVCO)
CVCO in Phoenix, Ariz., designs, produces, and markets manufactured homes in the United States. The company operates in Factory-Built Housing and Financial Services segments. Its manufactured homes are sold under seven brands: Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle, and Destiny. It also sells its homes through a network of independent and company-owned retailers, planned community operators, and residential developers.
On Feb. 28, CVCO announced the acquisition of a 184,000 square-foot manufacturing facility in North Carolina, which should expand its affordable home production capabilities.
In the third quarter ended Jan. 1, 2022, CVCO’s net revenue increased 49.5% year-over-year to $431.71 million. Its income from operations rose 130.4% from its year-ago value to $54.89 million, while its net income grew 304.1% to $79.62 million. The company’s net income per share increased 304.2% from its year-ago value to $8.57.
The $4.81 consensus EPS estimate for its fiscal fourth quarter (ending March 31, 2022) represents a 77.6% improvement year-over-year. The $435.50 million consensus revenue estimate for the about-to-be-reported quarter indicates a 42.1% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of CVCO have gained 8.4% over the past year. However, it has slumped 3.7% over the past month and 28.9% year-to-date to close yesterday’s trading session at $225.73.
CVCO’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B grade for Growth and Quality. Within the Homebuilders industry, it is ranked #6 of 24 stocks. To see the other ratings of CVCO for Value, Momentum, and Stability, click here.
NVR shares were trading at $4,031.34 per share on Tuesday morning, down $179.99 (-4.27%). Year-to-date, NVR has declined -31.77%, versus a -18.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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