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On Thursday, Oppenheimer analysts adjusted their outlook for Toll Brothers (NYSE:TOL), a luxury homebuilding company currently trading at an attractive P/E ratio of 7.2x. The firm’s analyst, Tyler Batory, reduced the price target for Toll Brothers to $155 from the previous target of $165, while maintaining an Outperform rating on the stock. According to InvestingPro analysis, the company appears undervalued based on its Fair Value assessment.
The adjustment comes as Oppenheimer anticipates Toll Brothers to revise its annual closings guidance downward, in response to inconsistent demand during the spring selling season. This anticipated change in guidance is attributed to the broader market environment rather than issues specific to the company, which maintains a strong financial health score of "GREAT" according to InvestingPro metrics.
The analyst elaborated on the reasons behind the revised estimates, noting that Toll Brothers is likely to prioritize pricing over sales velocity. This strategy, along with a favorable product mix in the second half of the fiscal year 2025 (2H25), and strategic changes within the company, are expected to help maintain gross margin stability around 27% for the year. The company has demonstrated strong margin management, achieving a gross profit margin of 28.1% over the last twelve months.
Despite the potential for orders to fall below typical seasonal trends in the second quarter (Q2), Oppenheimer remains optimistic about Toll Brothers’ prospects. The analyst highlighted the company’s community count, inventory position, and a shift towards readily available speculative homes as factors that could enable Toll Brothers to increase its closings in the following year. With a robust current ratio of 4.4x and moderate debt levels, InvestingPro data reveals 8 additional key insights about Toll Brothers’ financial strength and growth potential, available exclusively to subscribers.
In summary, while the near-term outlook for closings might be tempered, structural business adjustments and strategic focus areas are seen as supportive of Toll Brothers’ performance going forward. The Outperform rating reflects Oppenheimer’s continued confidence in the company’s ability to navigate the current housing market environment. For comprehensive analysis including detailed valuation metrics and growth projections, investors can access Toll Brothers’ full Pro Research Report, part of the extensive coverage available for 1,400+ US stocks on InvestingPro.
In other recent news, Toll Brothers has seen several noteworthy developments. Moody’s Ratings upgraded Toll Brothers’ Issuer Rating to Baa2 from Baa3, citing the company’s growth, strong liquidity, and resilience in the luxury home market. Additionally, UBS analyst John Lovallo reaffirmed a Buy rating on Toll Brothers stock, maintaining a price target of $183, highlighting the company’s cost advantage over smaller competitors. Meanwhile, Keefe, Bruyette & Woods adjusted their price target for Toll Brothers to $132 from $164, maintaining a Market Perform rating due to mixed fiscal first-quarter results. In corporate governance, Toll Brothers announced a change allowing for the removal of directors with a simple majority vote, reflecting evolving standards. The company also increased its quarterly dividend by 9%, marking the fifth consecutive year of dividend growth, indicating its commitment to shareholder returns. These developments provide investors with insights into Toll Brothers’ strategic positioning and financial health amidst a competitive market landscape.
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