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On Wednesday, Keefe, Bruyette & Woods maintained its Market Perform rating and $132.00 price target for Toll Brothers (NYSE:TOL), a luxury homebuilding company. The firm’s analyst highlighted Toll Brothers’ second-quarter earnings per share (EPS), which surpassed expectations by $0.72, or 26%, due to several factors. These included better-than-anticipated deliveries, joint venture and other income, as well as savings in selling, general and administrative expenses (SG&A), and a slight increase in gross margin. However, these gains were partially offset by a lower average selling price (ASP).
Despite the positive EPS, Toll Brothers’ order rate declined by 13% year over year, which was a weaker performance than Keefe, Bruyette & Woods’ anticipated 7% increase and the consensus estimate of a 3% decrease. The forecast for the third fiscal quarter provided by Toll Brothers was also below expectations, with a midpoint guidance of $3.46 compared to the firm’s projection of $4.04 and the consensus of $4.03. Nonetheless, the implied guidance for the fourth fiscal quarter seemed to align with expectations, with a figure of $5.29 against the firm’s estimate of $5.33 and the consensus of $5.04.
The analyst expects Toll Brothers’ shares to experience a slight uptick following the robust second-quarter results, although this may be tempered by the softer order rate and forward-looking guidance. Toll Brothers’ valuation is currently at 1.4 times its current book value and 1.1 times its forward book value, which is 15% below that of its large-cap peers. InvestingPro analysis suggests the stock is currently undervalued, with strong fundamentals including a healthy current ratio of 4.41 and moderate debt levels. However, it remains above the overall sector’s average of 1.1 to 1.3 times. Discover 12 additional key insights about TOL through the comprehensive Pro Research Report, available exclusively on InvestingPro.
The report concluded with the observation that while Toll Brothers’ shares appear modestly attractive, the overall market environment continues to be fraught with uncertainty. As a result, Keefe, Bruyette & Woods has decided to maintain its Market Perform rating on the stock.
In other recent news, Toll Brothers has been the focus of several analyst reports and corporate developments. RBC Capital Markets adjusted its price target for Toll Brothers to $133, maintaining an Outperform rating despite a challenging environment and declining spring sales trends. Oppenheimer also revised its target to $155, citing inconsistent demand and expecting a downward revision in annual closings guidance. Meanwhile, Moody’s upgraded Toll Brothers’ Issuer Rating to Baa2, highlighting the company’s growth, strong liquidity, and resilience in the luxury home market.
UBS reiterated a Buy rating with a $183 price target, emphasizing Toll Brothers’ cost advantages and strategic focus on the luxury segment. The company reportedly benefits from a cost edge over smaller competitors, with a significant portion of its buyers paying in cash. In corporate governance news, Toll Brothers amended its director removal process, allowing for removal with a simple majority vote, as approved by shareholders. This change aims to enhance board management flexibility.
Shareholders also supported the re-election of all board members and ratified the appointment of the independent accounting firm. An advisory vote on executive compensation passed with strong support, indicating shareholder approval of the company’s pay practices. These developments reflect Toll Brothers’ strategic and operational adjustments in response to current market conditions.
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