On Tuesday, JPMorgan (NYSE:JPM) increased its price target on shares of NVR Inc . (NYSE: NYSE:NVR) to $8,875 from the previous target of $8,265, while keeping a Neutral rating on the stock. The adjustment follows NVR's second-quarter financial results for 2024, which reported earnings per share (EPS) of $120.68, including a $2.05 per share tax benefit from stock option exercises. This figure fell short of both JPMorgan's estimate of $125.87 and the consensus estimate of $125.18.
The lower-than-expected EPS was attributed to a higher income tax rate of 24.9%, versus the estimated 20.0%, impacting earnings by $7.77 per share. Additionally, the company experienced lower gross margins and other income, which negatively affected earnings by $2.69 and $0.91 per share, respectively. However, these were partly counterbalanced by lower selling, general and administrative expenses (SG&A), higher financial services income, and increased homebuilding revenues, which contributed positively to the EPS.
NVR's quarterly orders showed a 3% year-over-year increase, aligning closely with JPMorgan's estimate. Sales pace and average community count also showed growth, indicating a demand pattern similar to other builders, despite some earlier fluctuations in the quarter due to higher interest rates. On a sequential basis, the company's sales pace saw a 1% decline, which was consistent with its historical average.
Furthermore, NVR's share repurchase activity intensified in the second quarter, reaching $639 million, up from $497 million in the first quarter. As a result, JPMorgan has revised its share repurchase estimates for the years 2024-25 to $1.8 billion annually, up from the previous estimate of $1.5 billion.
Taking into account these factors, JPMorgan has modestly raised its EPS estimates for 2024-25 to $511.21 and $554.60, respectively, from the prior forecasts of $500.08 and $533.27. The new December 2024 price target is based on a target price-to-earnings (P/E) multiple of around 16 times the estimated 2025 earnings, a slight increase from the previous multiple of approximately 15.5 times.
This target multiple is considered appropriate by JPMorgan, positioning it nearly one turn below the current multiple against the 2024 estimate, slightly above the multiple against the 2025 estimate, and close to a mid-cycle multiple for the stock. The firm's ongoing Neutral rating reflects a view that the stock's risk/reward is relatively balanced at this time, with potential upside roughly in line with the average of their coverage universe.
InvestingPro Insights
Following JPMorgan's updated outlook on NVR Inc., investors might find additional context from real-time data and insights provided by InvestingPro. NVR's balance sheet strength is highlighted by the fact that the company holds more cash than debt, providing financial flexibility. Additionally, the stock's strong performance is reflected in its return over the last month, with a notable 13.31% increase, and it's trading near its 52-week high, at 99.0% of the peak price.
However, potential investors should be aware that the stock's Relative Strength Index (RSI) suggests it is in overbought territory, which could indicate a pullback in the near term. Moreover, NVR is trading at a high Price/Earnings (P/E) ratio of 16.87 relative to near-term earnings growth, and at a Price/Book (P/B) multiple of 6.2, which may suggest the stock is priced optimistically compared to its book value.
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