Market Overview

JMP Securities Not-So-Bullish On Residential Construction, Weighs In On DR Horton, NVR After Strong Earnings


In a Morning Note from Tuesday, JMP Securities weighed in on two residential construction stocks: D.R. Horton, Inc. (NYSE: DHI) and NVR, Inc. (NYSE: NVR). The firm maintained a Market Perform rating on both companies after strong earnings.

D.R. Horton

D.R. Horton revealed EPS of $0.39 for the fiscal first quarter of 2015, beating JMP and consensus estimates, on the back of higher than expected deliveries and Financial Services outperformance.

“More importantly, 2015 guidance was reiterated after orders and margins beat F1Q15 consensus expectations, driven by the successful switch in strategy to push volume over pricing,” the report stated.

“With January sales coming in strong and incentive levels flat yr/yr, we [the analysts] believe DHI has set itself up to execute well during the upcoming spring selling season. However, after considering F1Q15 results, guidance, and management’s commentary regarding lower ASPs associated with Express Homes,” it added.

Related Link: Credit Suisse Analyst: Headwinds Blast Homebuilders' Outlook

The research firm reiterated its earnings estimate of $1.81 for fiscal 2015, and trimmed its projections for fiscal 2016, from $2.05 to $2.02.

While JMP likes D.R. Horton for its competitive advantages (derived from its scale and broad product portfolio), analysts believe that the stock is fairly valued, at 13.5x 2015 P/E and 1.7x adjusted book value (compared to the large cap group’s valuation at 15.4x and 2.4x, respectively).

They expect the company to lag its large cap peers in terms of earnings growth.


NVR also beat EPS estimates for the recently reported fourth quarter of 2014. The company delivered EPS of $25.70, versus JMP’s projected $22.98, and consensus of $24.44.

The report points out several factors having an impact on this beat, “including $2.2M of higher normalized pre-tax income from the homebuilding division, a $4.3M benefit from the financial services division, and the buyback of 136K shares.”

However, given that the company missed JMP’s community count expectations for three consecutive quarters, analysts Peter L. Martin and Aaron Hecht cut down the assumed community count growth rate and 2015–2016 EPS estimates, from $84.12 and $102.00 to $80.66 and $95.56, respectively.

With NVR trading at 15.2x 2015E EPS versus the large-cap group’s valuation of 15.5x, JMP sees the shares as fairly valued “given the company’s geographic exposure and land light model.”

Latest Ratings for DHI

Jul 2020CitigroupMaintainsBuy
Jul 2020Credit SuisseMaintainsOutperform
Jul 2020BarclaysMaintainsOverweight

View More Analyst Ratings for DHI
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Related Articles (DHI + NVR)

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Posted-In: Aaron Hecht JMP JMP Securities Peter L. MartinAnalyst Color Earnings News Analyst Ratings

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