Given the recent turbulence in the housing market, consumers have been discouraged from buying homes due to higher mortgage rates and inflationary pressures. However, the long-term outlook for the housing market remains strong. Moreover, there is a possibility that interest rates will decrease in the future, which could motivate consumers to invest in buying homes.
Amid this backdrop, let’s evaluate the fundamentals of quality homebuilder stocks such as NVR, Inc. (NVR), PulteGroup, Inc. (PHM), and Skanska AB (publ) (SKBSY).
According to the latest data from the National Association of Realtors (NAR), existing home sales in March declined by 2.4% from the month before to an annualized rate of 4.44 million, reversing gains from February.
However, confidence among home builders improved in April, which could point to a pickup in the new housing market. Mortgage rates have steadily declined since the beginning of March, boosting demand. According to Bankrate’s national survey of large lenders, the average interest rate on 30-year mortgages fell to 6.48% this week, down from 6.61% last week.
Moreover, with the overall consumer price inflation calming and rents expected to decelerate from robust apartment construction, market participants expect the Federal Reserve’s monetary policy to shift from tightening to neutral to possibly loosening over the next 12 months. Therefore, home sales should rebound.
Furthermore, the industry enjoys favorable investor sentiment, as evident from SPDR Homebuilders ETF’s (XHB) 20.5% returns over the past six months, compared to S&P 500’s 8.5% gains over this period.
According to a report published by the Association of Professional Builders (APB), 58.1% of builders experienced an increase in sales revenue in 2022, and 72% are expecting revenue to increase in 2023.
With these factors in mind, NVR, PHM, and SKBSY might be worth buying despite the market uncertainty. Let’s look at the above-mentioned stocks in detail.
NVR, Inc. (NVR)
NVR operates through Homebuilding and Mortgage Banking segments. It engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and Heartland Homes names. The company also offers a range of mortgage services to homebuilding customers through its mortgage banking operations.
NVR’s revenue came in at $2.13 billion for the first quarter that ended on March 31, 2023. The company’s net income and operating income amounted to $344.35 million and $412.75 million, respectively. Also, its EPS stood at $99.89 for the same period. In addition, its cash and cash equivalents of $2.79 billion increased 11.3% from $2.50 billion as of December 31, 2022.
Streets expect NVR’s revenue to increase marginally year-over-year to $9.68 billion for the fiscal year 2024, while its EPS is expected to be $385.06 in the same period. Its EPS is expected to increase by 2.4% per annum in the next five years. Moreover, the stock topped the consensus revenue estimates in each of the trailing four quarters, which is excellent.
Additionally, NVR’s revenue, EBITDA, and net income grew at CAGRs of 12.5%, 27.4%, and 23.8% over the past three years, respectively. Likewise, its EPS has grown at 29.6% CAGR in the same period.
Over the past six months, the stock has gained 39.4% to close the last trading session at $5,799.52
NVR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Sentiment. In the B-rated 24-stock Homebuilders industry, it is ranked #8. To see additional POWR Ratings of NVR for Growth, Value, and Stability, click here.
PulteGroup, Inc. (PHM)
PHM is primarily engaged in the homebuilding business in the United States. It acquires and develops land for residential purposes and constructs housing on such land. The company also offers various home designs, including single-family detached, townhomes, condominiums, and duplexes.
On April 25, PHM announced that its board of directors had approved a $1 billion increase to its share repurchase authorization, bringing the company’s total share repurchase authorization to $1.2 billion. This reflects its strong financials and ability to create long-term shareholder value.
On March 8, the company expanded its footprint into the Greenville market, beginning with three new construction communities, namely Indigo Park, Briarwood Reserve, and Alston Park, under its Pulte Homes brand. This should help in boosting the company’s overall revenues.
Commenting on this expansion, Chad Plunkett, president of PHM’s Georgia division, said, “We are thrilled to expand into the upstate region of South Carolina to help meet the growing demand for new homes. Greenville ranks among the most sought-after markets for homebuyers, thanks to its vibrant downtown district and growing hub for major employers.”
He also added that future development plans are also underway for several new projects to expand our offerings in the market, including the introduction of our Centex brand to serve first-time homebuyers.
In the first quarter that ended on March 31, 2023, PHM’s total revenue increased 13.5% year-over-year to $3.58 billion. The company’s net income came in at $532.26 million, representing a 17.1% year-over-increase, while its EPS grew 28.4% from the prior-year quarter to $2.35.
Analysts expect PHM’s EPS and revenue to amount to $2.38 and $3.82 billion for the current quarter ending June 2023. Its EPS is expected to increase by 9.2% per annum over the next five years. Additionally, the stock has beaten consensus EPS estimates in three out of the trailing four quarters.
PHM’s revenue and EBITDA grew at 16.6% and 34.6% CAGRs over the past three years. Over the same period, the company’s EPS improved at a CAGR of 44.9%.
The stock has gained 68.9% over the past six months to close the last trading session at $66.27.
It’s no surprise that PHM has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Quality. Within the same Industry, it is ranked #5 of 24 stocks.
In addition to the POWR Ratings we stated above, we also have PHM’s ratings for Growth, Value, Stability, and Sentiment. Get all PHM ratings here.
Skanska AB (publ) (SKBSY)
Headquartered in Stockholm, Sweden, SKBSY operates as a construction and project development company involved in constructing and renovating buildings, as well as providing infrastructure services such as performing construction work, maintenance, and operation. It operates through four segments: Construction; Residential Development; Commercial Property Development; and Investment Properties.
On April 28, SKBSY signed a contract with the San Gabriel Valley Council of Governments to make improvements to the California State Route 57/60 interchange that runs through the City of Diamond Bar and the City of Industry in California. The contract is worth $267 million, which would be included in the U.S. order bookings for the second quarter of 2023.
In the same month, SKBSY sold an office building in Karlskrona, Sweden, for approximately SEK 250 million ($24.25 million). The sale aligns with the company’s strategy to divest commercial properties and focus on developing and constructing new projects.
During the fiscal fourth quarter (ended December 31, 2022), SKBSY’s revenue increased marginally year-over-year to SEK 42.36 billion ($ 4.11 billion). The company’s gross income and income from operations increased 3.6% and 47.5% from the same period in the prior year to SEK 4.95 billion ($480.11 million) and SEK 3.85 billion ($373.42 million), respectively, while its EPS came in at SEK 7.92, representing a 47.8% increase year-over-year.
SKBSY is expected to witness revenue growth of 1.2% for the fiscal year 2023 and 1.5% for 2024 to $15.50 billion and $15.74 billion, respectively. Moreover, the stock surpassed the consensus revenue estimates in three out of the trailing four quarters.
SKBSY’s net income and EPS grew at CAGRs of 11% and 10.8% over the past three years. Likewise, its total assets grew at a CAGR of 6.4% during the same period.
Over the past month, the stock has gained 3.3% to close the last trading session at $15.91.
SKBSY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Value and Stability. In the same industry, it is ranked #6 out of 24 stocks. Click here to see the other ratings of SKBSY for Growth, Momentum, Sentiment, and Quality.
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NVR shares were trading at $5,821.05 per share on Friday morning, up $21.53 (+0.37%). Year-to-date, NVR has gained 26.20%, versus a 8.59% 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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