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On Thursday, RBC Capital Markets sustained its optimistic stance on Toll Brothers Inc. (NYSE: NYSE:TOL), upholding an Outperform rating and a $133.00 price target. According to InvestingPro analysis, the stock appears undervalued, trading at just 7.7 times earnings despite its strong market position. RBC Capital’s analysts pointed to Toll Brothers’ ability to navigate through current market headwinds with better-than-expected gross margins, which InvestingPro data shows reached 28.1% in the last twelve months. This strength was attributed to the benefits derived from built-to-order (BTO) homes, which helped to counterbalance softer sales in speculative homes. The company maintains a healthy financial position with a current ratio of 4.4, indicating strong liquidity to manage market fluctuations.
The company’s management acknowledged the ongoing difficult market conditions, but the results showcased more resilience than anticipated, particularly in gross margin percentages. The positive impact from the lagged BTO margins was significant enough to outweigh the weaker performance of speculative homes, while the company continued to prioritize maintaining prices over sales volume.
Despite the robust outcome, RBC Capital noted the potential risks associated with Toll Brothers’ future closings and gross margin percentages, given the weaker demand and the necessity to sell a substantial number of speculative homes. Nonetheless, RBC Capital’s analysts have increased their earnings per share estimates for fiscal years 2025 and 2026 by 5% and 4%, respectively. This adjustment followed a previous reduction of 7% and 14% before the earnings release.
The firm’s analysts commended Toll Brothers for its strategic market positioning, highlighting its strong and unique land portfolio, a commitment to returning capital to shareholders, and a customer base with higher affluence. These factors, combined with a robust 20% return on equity and what InvestingPro rates as "GREAT" financial health, contributed to the firm’s continued recommendation of an Outperform rating for Toll Brothers’ stock, paired with a steady price target of $133.00. InvestingPro subscribers have access to 10 additional key insights about Toll Brothers, including detailed analysis of its capital return strategy and valuation metrics.
In other recent news, Toll Brothers reported strong financial results for the second quarter of fiscal 2025, surpassing earnings expectations with an earnings per share (EPS) of $3.50, compared to the forecasted $2.84. Revenue reached $2.74 billion, exceeding the anticipated $2.5 billion. The company achieved record home sales revenue of $2.71 billion, demonstrating its strong operational execution. Evercore ISI raised Toll Brothers’ price target to $169, maintaining an Outperform rating, following the company’s robust performance. The luxury homebuilder reported adjusted diluted EPS of $3.58, surpassing both Evercore ISI’s projection of $3.00 and the consensus estimate of $2.83. Toll Brothers exceeded expectations in several financial metrics, including gross margins and home closings, although new orders and average selling prices fell short. Despite these misses, the company provided a positive outlook for the third quarter and reaffirmed its full-year guidance. Toll Brothers’ commitment to share repurchases was highlighted, with increased guidance for buybacks in 2025, reflecting confidence in its financial strategy.
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