On Tuesday, JPMorgan updated its outlook on NVR Inc . (NYSE: NYSE:NVR), increasing the price target to $9,820 from the previous target of $8,875, while keeping a Neutral rating on the stock. The adjustment follows NVR's third-quarter financial results for 2024 and subsequent discussions with the company.
NVR's third-quarter earnings per share (EPS) of $130.49 came in below JPMorgan's estimate of $139.55 but were only marginally lower than the consensus of $131.28. The shortfall in JPMorgan's forecast was mainly due to NVR's lower-than-expected gross margins of 23.4%, compared to the anticipated 24.0%, which impacted earnings by $3.95 per share. Additional factors contributing to the lower EPS included a decrease in financial services income and increases in both the number of shares outstanding and selling, general, and administrative expenses (SG&A).
Despite these challenges, NVR saw a 19% year-over-year increase in orders for the third quarter, surpassing JPMorgan's 13% growth expectation. The company's sales pace improved by 22%, significantly ahead of the 12% predicted by JPMorgan, while the average community count dropped by 2%, which was better than the projected 1% increase.
The analyst noted that the demand for NVR's offerings remained relatively healthy and consistent throughout the quarter, contrasting with PulteGroup (NYSE:PHM), which indicated that September was its strongest month. Moreover, NVR's sales pace decreased by only 4% sequentially, a figure much lower than the company's long-term average decline of 17%.
Order average selling prices (ASPs) dipped by 2% sequentially and 1% year-over-year, with incentives continuing to be elevated. Share buybacks also slowed down in the third quarter, totaling $357 million, down from $639 million in the second quarter. However, JPMorgan has increased its share repurchase estimates for 2024-2025 to $2.0 billion annually, up from $1.8 billion.
Following the third-quarter performance, JPMorgan slightly reduced its 2024-2025 EPS estimates for NVR to $503.44 and $534.09, respectively, from the earlier projections of $511.21 and $554.60. This revision is primarily due to a more conservative gross margin outlook. Additionally, JPMorgan has introduced a 2026 EPS estimate of $577.75.
The new December 2025 price target of $9,820 is based on a target price-to-earnings (P/E) multiple of approximately 17 times JPMorgan's 2026 EPS estimate. This is an increase from the previous target, which was based on a P/E multiple of about 16 times the 2025 EPS estimate. JPMorgan considers the target multiple appropriate, noting it is roughly half a turn below NVR's current multiple against the 2025 estimate and aligns with a mid-cycle multiple for the stock. The firm maintains its Neutral rating, viewing the risk/reward balance for NVR as fairly even at this time and suggesting the upside potential is about average for the industry.
In other recent news, NVR Inc., a prominent U.S. homebuilder, reported third-quarter earnings that fell short of Wall Street's expectations due to rising lot costs and the necessity to provide closing cost assistance. The company's earnings per share for the third quarter were slightly below average analyst estimates, while consolidated revenues surpassed analyst estimates, climbing 6% year-over-year. Despite these challenges, NVR saw a 5% increase in home deliveries, indicating a healthy demand in the housing market.
In additional developments, JPMorgan increased its price target on NVR shares following the company's second-quarter financial results. The firm has adjusted its earnings per share estimates for 2024-25 and revised its share repurchase estimates for the same period. Meanwhile, BofA Securities raised its price target on NVR shares, maintaining a Buy rating based on the company's strong market position and potential for margin expansion.
InvestingPro Insights
To complement JPMorgan's analysis of NVR Inc., recent data from InvestingPro offers additional context for investors. NVR's market capitalization stands at $29.09 billion, with a P/E ratio of 18.41, slightly above JPMorgan's target multiple. The company's revenue for the last twelve months as of Q2 2024 was $10.12 billion, with a modest revenue growth of 0.05% over the same period.
InvestingPro Tips highlight that NVR holds more cash than debt on its balance sheet, which aligns with the company's strong financial position mentioned in the article. Additionally, NVR has been aggressively buying back shares, a trend that JPMorgan expects to continue with increased share repurchase estimates for 2024-2025.
It's worth noting that NVR has shown a high return over the last year, with a one-year price total return of 75.94% as of the latest data. This performance underscores the company's resilience in a challenging market environment.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for NVR, providing a deeper understanding of the company's financial health and market position.
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