Citi cuts Toll Brothers stock price target to $123 from $137

On Monday, Citi analyst Anthony Pettinari adjusted the price target for Toll Brothers (NYSE:TOL) shares, bringing it down to $123.00 from the previous $137.00. The firm maintained a Neutral rating on the stock. According to InvestingPro data, the stock has experienced significant volatility recently, with a nearly 10% decline in the past week and is currently trading near its 52-week low of $108.86. The revision reflects a decrease in the fiscal year 2025 earnings per share estimate by 3%, due to impairments observed in the first quarter and an anticipated softer demand during the spring season. Furthermore, estimates for fiscal years 2026 and 2027 were also reduced by 4% as a slower sales pace in fiscal year 2025 is expected to impact deliveries in the following year. Despite these challenges, InvestingPro analysis shows the company maintains strong financial health with a current ratio of 4.57 and operates with a moderate debt level.

Pettinari noted that the price target adjustment was influenced by applying a 1.4x next twelve months tangible book value multiple, a decrease from the previous 1.7x. This change was attributed to softer spring season demand and a projection of higher interest rates for a longer period. Despite a miss in first quarter earnings per share for Toll Brothers, primarily due to the timing of non-core multifamily sales, the company has reported mixed results in the early spring season. Higher inventories in certain markets have led to pricing pressures, particularly on lower-end offerings.

Toll Brothers has indicated a plan to reduce speculative starts in the near term in response to these market conditions. However, the impact on fiscal year 2025 results may be limited, as approximately three-quarters of the company’s delivery guidance of 11.2 to 11.6 thousand units is already completed or in backlog. For the second quarter, Toll Brothers anticipates an improvement in gross margins, driven by a higher number of luxury deliveries and closings in the higher-margin Pacific region. The company’s strong execution is reflected in its impressive last twelve months gross profit margin of 28.11% and return on equity of 20%. For deeper insights into Toll Brothers’ valuation and growth prospects, investors can access comprehensive analysis through InvestingPro, which offers exclusive financial metrics and expert research reports.

In other recent news, Toll Brothers reported its Q1 2025 earnings, revealing a shortfall in both earnings per share (EPS) and revenue compared to forecasts. The luxury homebuilder posted an EPS of $1.75, below the expected $2.04, while revenue came in at $1.84 billion, missing the anticipated $1.91 billion. Despite these misses, the company maintained its full-year guidance, projecting deliveries between 8,600 and 11,400 homes and an adjusted gross margin of 27.25%. RBC Capital Markets adjusted its outlook on Toll Brothers by reducing the price target from $142.00 to $139.00, maintaining an Outperform rating. This revision was due to skepticism around Toll Brothers’ guidance for the first and second quarters, which fell short of expectations. However, RBC Capital noted Toll Brothers’ strong gross margin percentage as a positive factor, reflecting the company’s robust land position and affluent customer base. Analysts believe Toll Brothers is relatively well-positioned to navigate macroeconomic challenges in the housing market.

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