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On Tuesday, JPMorgan adjusted its financial outlook for Toll Brothers (NYSE:TOL), a prominent home construction company, reducing its price target to $139 from the previous $148 while maintaining a Neutral stock rating. According to InvestingPro analysis, Toll Brothers currently appears undervalued, with the stock trading at an attractive P/E ratio of 7.87x and showing a "GREAT" overall financial health score of 3.08 out of 5. The revision follows Toll Brothers’ second-quarter earnings call, which ended in April, where the company reported 2,900 home closings, surpassing the expected guidance of 2,500 to 2,700.
Despite the higher-than-anticipated home closings, Toll Brothers reaffirmed its full-year 2025 closings outlook of 11,200 to 11,600 units, representing a 4-7% increase. The company’s strong operational performance is reflected in its robust EBITDA of $1.92 billion and impressive current ratio of 4.1, indicating solid financial stability. For deeper insights into Toll Brothers’ financial health and growth prospects, InvestingPro subscribers have access to over 10 additional exclusive ProTips and comprehensive analysis. To reach the midpoint of its guidance, the company anticipates approximately 4,500 closings from its backlog of over 6,000 homes and roughly 2,000 speculative deliveries out of 3,400 homes currently under construction, which includes 1,028 completed speculative homes.
Toll Brothers reported a second-quarter gross margin of 27.5%, excluding interest and charges, which exceeded the guidance of 27.25%. This was attributed to a favorable mix, cost controls, and stronger leverage from higher-than-expected revenue. The company still projects a gross margin of 27.25% for the full year 2025, with third and fourth-quarter gross margins expected to match this figure, assuming no market improvement in the second half of the year and spec incentives similar to the second quarter.
The company is focusing on maintaining price over pace in an environment where demand has shown greater softness than expected in the second quarter, a trend that has continued into the third quarter. Even so, Toll Brothers has increased its full-year 2025 share repurchase outlook to $600 million, up from the previously expected $500 million, following $177 million spent in the second quarter of 2025. InvestingPro data highlights management’s aggressive share buyback strategy, complemented by the company’s consistent dividend payments for nine consecutive years and a moderate debt level, demonstrating strong commitment to shareholder returns. The company also maintains its projection of approximately $1 billion in cash flow from operations.
After a softer second quarter, with orders down 13% versus the anticipated 1% decline, May sales pace has aligned with March and April, despite typically being lower. However, the company notes that sales pace in June and July has historically been stronger than May. JPMorgan slightly adjusted its fiscal year 2025 and 2026 earnings per share estimates for Toll Brothers to $14.10 and $15.41, respectively, from $13.76 and $15.62, after the first quarter results and reiterated guidance for the full year 2025.
The reduced December 2025 price target is now based on a price-to-earnings target multiple of approximately 9 times JPMorgan’s fiscal year 2026 earnings per share estimate, a slight decrease from the previous 9.5 times. This target multiple is considered to be in line with the historical mid-cycle range of 9-10 times for larger-cap companies and is seen as fairly reflecting the market view and fundamental outlook for homebuilders. JPMorgan’s stance on Toll Brothers remains Neutral compared to its peers, considering its relative valuation as somewhat attractive but still reflective of the fundamental outlook.
In other recent news, Toll Brothers reported strong financial results for the second quarter of fiscal 2025, with earnings per share (EPS) of $3.50, significantly surpassing the forecasted $2.84. The company’s revenue reached $2.74 billion, exceeding the anticipated $2.5 billion, highlighting robust operational performance. Evercore ISI responded to these results by raising its price target for Toll Brothers to $169, maintaining an Outperform rating, and adjusting its full-year 2025 EPS forecast to $14.51. Despite the impressive financial performance, Keefe, Bruyette & Woods revised its price target for Toll Brothers down to $120, citing softer housing market trends and lower-than-expected order numbers as reasons for the adjustment. Meanwhile, RBC Capital Markets maintained its Outperform rating with a $133 price target, acknowledging Toll Brothers’ strong gross margins and strategic market positioning. The company reaffirmed its full-year guidance, expecting to deliver between 11,400 and 11,600 homes in fiscal 2025, with an emphasis on maintaining pricing over sales volume. These developments reflect a mixed but cautiously optimistic outlook for Toll Brothers amid challenging market conditions.
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