Toll Brothers, Inc. (TOL) is set to report third quarter 2013 results on Aug 21. Last quarter, it reported in line results. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
During the second quarter earnings conference, Toll Brothers lowered its third quarter expectation due to transfer of some of its high margin deliveries of The Touraine to the fourth quarter of 2013.
The Touraine is one of the largest projects undertaken by Toll Brothers. It is an ultra-luxury residential building with 21 units, located in Manhattan’s Upper East Side in New York City. Toll Brothers announced that 16 of the 21 condominiums have already been delivered. These 16 luxury condominiums are expected to generate revenues of $50.7 million in the third quarter of 2013. The remaining five units under contract, worth $38.3 million, are expected to be delivered in fourth quarter 2013. The company had previously expected to deliver all the units in the third quarter.
Moreover, Toll Brothers now expects to deliver 25% more homes in the fourth quarter than in the third quarter of 2013. The company expects 20% more revenues in the fourth quarter of 2013 than in third quarter 2013.
Our proven model does not conclusively show that Toll Brothers is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method ) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Toll Brothers currently has an ESP of -7.41%.
Zacks Rank #3 (Hold). Toll Brothers’ Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes positive surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
We see likely earnings beat coming from these 3 companies:
The Home Depot, Inc. (HD), Earnings ESP of +2.52% and a Zacks Rank #2 (Buy)
KB Home (KBH), Earnings ESP of +35.00% and a Zacks Rank #3 (Hold)
Taylor Morrison Home Corporation (TMHC), Earnings ESP of +2.70% and a Zacks Rank #3 (Hold)
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