How Will Toll Perform in 1Q13?

Zacks

Toll Brothers Inc. (TOL) is set to report first quarter fiscal 2013 results on Feb 20. Last quarter, it posted a 52.2% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Toll Brothers witnessed significant order growth, stable margins and improved pricing in the fourth quarter of 2012, gaining momentum from improving housing fundamentals. Toll has benefited from its focus on high priced products, which is reflected in its order growth. Moreover, its cost control initiatives are generating significant margin growth for the company.

Earnings Whispers?

Our proven model does not conclusively show that Toll Brothers is likely to beat earnings this quarter. This is because a stock needs to have both a positive ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Negative Zacks ESP:  The Earnings ESP is -45.5%. This is because the Most Accurate Estimate stands at 6 cents while the Zacks Consensus Estimate is much lower at 11 cents. This comes to a difference of -45.5%.

Zacks #3 Rank (Hold): Toll’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #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

Here are some other housing companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the next quarter:  

NVR Inc. (NVR), Earnings ESP of +10.21% and Zacks #1 Rank (Strong Buy)

DR Horton Inc. (DHI), Earnings ESP of +11.11% and Zacks #2 Rank (Buy)

PulteGroup, Inc. (PHM), Earnings ESP of +6.25% and Zacks #3 Rank (Hold)

Read the Full Research Report on PHM

Read the Full Research Report on TOL

Read the Full Research Report on DHI

Read the Full Research Report on NVR

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