The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Toll Brothers is on a winning streak. The homebuilder revealed a 109% rise in third-quarter net income as the number of homes sold increased by 36% on-the-year. The selling price was also 12% higher when compared with the same period last year. Toll Brothers’ third-quarter figures easily exceeded estimates, as revenue came in at $1.05 billion and earnings per share of 55 cents. The consensus was for revenue of $978 million and EPS of 45 cents.
Record-low interest rates have helped the construction industry and the Federal Reserve will be careful not to upset the housing market as a sudden interest rate rise could force many mortgage holders into the red, and mortgage defaults contributed to the Fed intervention in the first place.
The Pennsylvania-headquartered company is the largest builder of luxury homes in the US. The high-end nature of the business means its clients are less concerned by the prospect of an interest rate increase which is on the horizon next year. Unlike other homebuilders, Toll Brothers didn’t resort to offering discounts to bump up its sales numbers, which underlines the demand at the top-end of the housing market.
Last month the company announced its unaudited and preliminary fourth-quarter figures and these were very well received by traders. Revenue rose by 29% to $1.35 billion but more importantly, new contracts and the value of new contracts rose by 10% and 16% respectively. The stock has rallied nearly 8% since the announcement but I must stress that the results are preliminary.
Toll Brothers is expected to post a fourth-quarter revenue of $1.32 billion and EPS of 72 cents.
Equity analysts are bullish on the stock. Out of the 23 recommendations, eight are buys, 12 are holds and three are sells, with the average target price of $37.76 which is nearly 9% above the current share price. Market analysts are more bullish on Lennar Corp in terms of ratings breakdown. There are 11 buy recommendations and 14 hold recommendations attached to the stock. However, the average target price is $46.55 which is marginally above the current share price.
The level of short positions on Toll Brothers has dropped to the lowest level this year on the back of the preliminary fourth-quarter earnings that were announced in early November.
If the results are as good as the preliminary figures, the stock could target $36 and move beyond that which would put $38 on the radar. If the results fail to measure up, the share price could look to fill the gap in the $32 area.