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Toll Brothers: Homebuilding Business Strong, City Living Down
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On Feb 28, we issued an updated research report on Toll Brothers Inc. (TOL - Free Report) – a builder of single-family detached and attached home communities; master planned luxury residential; and urban low, mid, and high-rise communities.
Positives
Strong housing demand is expected to drive revenues in the near term. Limited competition in the luxury housing market also proves to be advantageous for the company. Moreover, Toll Brothers has initiated a quarterly dividend of 8 cents per share, reflecting the company's strength and a positive expectation for earnings.
Toll Brothers recently reported impressive first quarter of fiscal 2017 earnings, beating the Zacks Consensus Estimate by 20%. Adjusted earnings also improved 5% year over year owing to better-than-expected closings and pricing in the company’s core single-family home business.
Consolidated homebuilding deliveries rose 11.9% year over year to 1,190 units in the first quarter of fiscal 2017. Deliveries increased across all West, North and Mid-Atlantic regions, barring California and South regions.
Meanwhile, the company looks well poised for earnings growth with the current growth estimate being 43.3% for 2017. Moreover, the company’s shares gained over 12% in the last three months, outperforming 8.5% growth registered by the Zacks categorized Building-Residential/Commercial industry.
Additionally, the stock’s long-term earnings growth rate of 10.35% and a VGM Score of “B” reflect its inherent strength.
Risks
The company’s City Living segment is proving to be a major drag on gross margin. Revenues at the segment were down 86.9% from the prior-year quarter due to a lower number of homes delivered.
Also, if mortgage rates rise rapidly, that could impact the demand for new homes. High mortgage rates dilute the demand for new homes as mortgage loans become expensive. This lowers purchasing power of buyers and hurts volumes, revenues and profits of homebuilders.
Estimate Revisions
The company’s recent earnings estimates have been mixed at best. The current quarter has seen two upward estimate revisions in the past 60 days compared to two downward revisions. Meanwhile, the full-year estimates have seen four upward and one downward revision over the same time frame.
As a result, the current quarter consensus estimate remained stable over the past two months, while the full-year estimates inched up 0.3%.
This somewhat mixed trend justifies the company’s Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
For 2017, NVR, Inc.’s EPS is expected to grow 23.6%.
PulteGroup surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters, with an average beat of 13.5%.
D.R. Horton’s – a Zacks Rank #2 (Buy) stock – earnings are expected to grow 15.6% in fiscal 2017.
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Toll Brothers: Homebuilding Business Strong, City Living Down
On Feb 28, we issued an updated research report on Toll Brothers Inc. (TOL - Free Report) – a builder of single-family detached and attached home communities; master planned luxury residential; and urban low, mid, and high-rise communities.
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Positives
Strong housing demand is expected to drive revenues in the near term. Limited competition in the luxury housing market also proves to be advantageous for the company. Moreover, Toll Brothers has initiated a quarterly dividend of 8 cents per share, reflecting the company's strength and a positive expectation for earnings.
Toll Brothers recently reported impressive first quarter of fiscal 2017 earnings, beating the Zacks Consensus Estimate by 20%. Adjusted earnings also improved 5% year over year owing to better-than-expected closings and pricing in the company’s core single-family home business.
Consolidated homebuilding deliveries rose 11.9% year over year to 1,190 units in the first quarter of fiscal 2017. Deliveries increased across all West, North and Mid-Atlantic regions, barring California and South regions.
Meanwhile, the company looks well poised for earnings growth with the current growth estimate being 43.3% for 2017. Moreover, the company’s shares gained over 12% in the last three months, outperforming 8.5% growth registered by the Zacks categorized Building-Residential/Commercial industry.
Additionally, the stock’s long-term earnings growth rate of 10.35% and a VGM Score of “B” reflect its inherent strength.
Risks
The company’s City Living segment is proving to be a major drag on gross margin. Revenues at the segment were down 86.9% from the prior-year quarter due to a lower number of homes delivered.
Also, if mortgage rates rise rapidly, that could impact the demand for new homes. High mortgage rates dilute the demand for new homes as mortgage loans become expensive. This lowers purchasing power of buyers and hurts volumes, revenues and profits of homebuilders.
Estimate Revisions
The company’s recent earnings estimates have been mixed at best. The current quarter has seen two upward estimate revisions in the past 60 days compared to two downward revisions. Meanwhile, the full-year estimates have seen four upward and one downward revision over the same time frame.
As a result, the current quarter consensus estimate remained stable over the past two months, while the full-year estimates inched up 0.3%.
This somewhat mixed trend justifies the company’s Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Stocks to Consider
Better-ranked stocks in the industry include NVR, Inc. (NVR - Free Report) , PulteGroup, Inc. (PHM - Free Report) and D.R. Horton, Inc (DHI - Free Report) .
NVR, Inc. and PulteGroup sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For 2017, NVR, Inc.’s EPS is expected to grow 23.6%.
PulteGroup surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters, with an average beat of 13.5%.
D.R. Horton’s – a Zacks Rank #2 (Buy) stock – earnings are expected to grow 15.6% in fiscal 2017.
A Full-Blown Technological Breakthrough in the Making
Zacks’ Aggressive Growth Strategist Brian Bolan explores autonomous cars in our latest Special Report, Driverless Cars: Your Roadmap to Mega-Profits Today. In addition to who will be selling them and how the auto industry will be impacted, Brian reveals 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>