The homebuilder industry has grown significantly amid a solid housing market as the demand for new homes remains high. With mortgage rates falling to record lows, homebuyers can secure homes at a lower cost. According to a Fox Business report, the average mortgage interest rate fell to 2.6% on December 2, the lowest in 16 days.
Furthermore, homebuilder confidence surged past expectations in November. According to a CNBC report, homebuilder sentiment rose to 83 points on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). And investors’ interest in the homebuilders is evident in the SPDR Homebuilders ETF’s (XHB) 6.6% returns over the past month. According to a Realtor.com forecast, home sales will grow by 6.6% in 2022.
So, we think it could be wise to add the following fundamentally sound homebuilder stocks to one’s portfolio now because they are well-positioned to benefit from the industry tailwinds: Lennar Corporation (LEN), NVR, Inc. (NVR), PulteGroup, Inc. (PHM), and Cavco Industries, Inc. (CVCO).
Lennar Corporation (LEN)
Miami, Fla.-based LEN is a homebuilder and an originator of residential and commercial mortgage loans. The company provides title insurance and closing services and develops multifamily rental properties. Its homebuilding operations are engaged in constructing and selling single-family attached and detached homes. It also purchases, produces, and sells residential land to third parties.
On October 26, 2021, LEN announced its plan to build the largest community of 3D-printed homes in partnership with ICON. The 100-home project is expected to break ground in 2022 and be codesigned by BIG-Bjarke Ingels Group. Using 3D innovation will help LEN make affordable homes of good quality and help keep the costs and environmental impact to a minimum.
For its fiscal third quarter, ended August 31, 2021, LEN’s revenues increased 18.2% year-over-year to $6.94 billion. The company’s net earnings grew 111.1% year-over-year to $1.40 billion. Also, its EPS came in at $4.52, up 113.2% year-over-year.
Analysts expect LEN’s EPS for its fiscal year 2021 to increase 81.9% year-over-year to $14.28. Its revenue for the quarter ending November 30, 2021, is expected to increase 20.2% year-over-year to $8.20 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has soared 50.6% in price year-to-date to close yesterday’s trading session at $114.82.
LEN’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Momentum, Sentiment, and Quality. It is ranked #2 out of 23 stocks in the B-rated Homebuilders industry. Click here to see the other ratings of LEN for Value and Stability.
NVR, Inc. (NVR)
NVR in Reston, Va.,constructs and sells single-family detached homes, townhomes, and condominium buildings. The company operates in the Homebuilding Mid Atlantic, Homebuilding Northeast, Homebuilding Mid East, and Homebuilding Southeast. In addition, it provides mortgage-related services to home building customers through its mortgage banking operations.
NVR’s revenue for the third quarter, ended September 30, 2021, increased 20% year-over-year to $2.40 billion. The company’s net income came in at $332.08 million, up 29.4% year-over-year. In addition, its EPS increased 32.7% year-over-year to $86.44.
NVR’s EPS and revenue for its fiscal year 2021 are expected to increase 42.9% and 24.3%, respectively, year-over-year to $328.92 and $9.11 billion. Over the past year, the stock has gained 41.7% in price to close yesterday’s trading session at $5,671.38.
NVR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. It has a B grade for Momentum, Sentiment, and Quality. Also, it is ranked #6 in the Homebuilders industry. Click here to see the additional POWR ratings for NVR (Growth, Value, and Stability).
PulteGroup, Inc. (PHM)
PHM is an Atlanta, Ga.-based home builder that operates through the homebuilding and financial services segments. Through its brands, Centex, Pulte Homes, American West, Del Webb DiVosta Homes, and John Wieland Homes and Neighborhoods, it offers a range of home designs from single-family detached to townhouses, condominiums, and duplexes.
In August 2021, PHM launched its online interior design service called Mine x Pulte. Through this service, homebuyers can buy the same furniture and décor pieces that Pulte interiors feature in its collection of model homes. Customers will be able to access the products they like by simply scanning the QR code, which will direct them to the MINE website. This could help boost the company’s revenue.
For its fiscal third quarter, ended September 30, 2021, PHM’s revenue increased 17.7% year-over-year to $3.47 billion. The company’s home sale revenue increased 17.7% year-over-year to $3.32 billion. While its net income came in at $475.54 million, up 14.2% year-over-year, its EPS increased 18.1% year-over-year to $1.82.
Analysts expect PHM’s EPS and revenue for the quarter ending December 31, 2021, to increase 43.8% and 33.5%, respectively, year-over-year to $2.33 and $4.26 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 26.7% in price year-to-date to close yesterday’s trading session at $54.67.
It is no surprise that PHM has an overall B rating, which equates to a Buy in our proprietary rating system. It has a B grade for Momentum and Quality. It is ranked #5 in the Homebuilders industry. Click here to see the other ratings of PHM for Growth, Value, Stability, and Sentiment.
Cavco Industries, Inc. (CVCO)
CVCO designs and produces factory-built homes. It operates in the factory-built housing and financial services segments. The Phoenix, Ariz.-based company’s factory-built housing segment includes wholesale and retail factory-built housing operations, while its financial services segment includes manufactured housing consumer finance and insurance.
On September 27, CVCO acquired the business and certain assets and liabilities of The Commodore Corporation. The acquisition is expected to help the company expand its reach across the Northeast, Midwest, and Mid-Atlantic regions.
CVCO’s net revenue for the fiscal second quarter, ended October 2, 2021, increased 39.3% year-over-year to $359.54 million. The company’s net income increased 150% year-over-year to $37.61 million. In addition, its EPS came in at $4.06, up 150.6% year-over-year.
For its fiscal year 2022, CVCO’s EPS is expected to increase 73.8% year-over-year to $14.34. Its revenue for the quarter ending March 31, 2022, is expected to grow 42% year-over-year to $435.30 million. It has surpassed the Street’s EPS expectations in each of the trailing four quarters. The stock has surged 85.2% in price year-to-date to close yesterday’s trading session at $325.08.
CVCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. It has an A grade for Sentiment and a B grade for Growth and Momentum. It is ranked #10 in the Homebuilders industry. To see the other ratings of CVCO (Value, Stability, and Quality), click here.
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LEN shares were unchanged in premarket trading Wednesday. Year-to-date, LEN has gained 52.22%, versus a 26.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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