NVR - NVR: A Compelling Compounder With A Fantastic Risk Profile

2024-03-18 14:16:03 ET

Summary

• NVR has grown well during the last decade (+9%) alongside delivering margin improvement (+9ppts), owing to tailwinds and impressive execution.
• The company takes a risk-averse approach to land, which has allowed it to generate considerable returns on equity (40%) and supreme consistency in its financial performance.
• While we are in a housing bear market, we are unconvinced of any lasting damage due to the strength of long-term tailwinds within the industry.
• New order volume was up considerably in Q4 (+25%) while US home valuations remained steady, implying the bottom has been reached.
• NVR’s valuation does not scream value, albeit a top performer’s share price rarely does. At an FCF yield of ~7% and a small premium to its peers, we see this as an attractive entry point.

Introduction and thesis

NVR, Inc. ( NVR ) is a leading home construction company in the United States. The company operates through its various subsidiaries, including Ryan Homes, NVHomes, and Heartland Homes, and primarily focuses on the construction and sale of single-family homes, townhomes, and condominiums in key markets across the country.

NVR is a market-leading business, with all the hallmarks of a long-term compounder. Management is efficiently allocating capital, while its approach to operations de-risks the cyclicality that comes with homebuilding. We do not believe investors are materially losing out with NVR and its ROE illustrates the efficient nature of its returns....

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