Despite near-term macro challenges, homebuilder Toll Brothers Inc (NYSE: TOL) enjoys a strong position, and its cash flow strength could result in an accelerated share repurchase program, according to Raymond James.
Raymond James’ Buck Horne maintains an Outperform rating on Toll Brothers with an unchanged $44 price target.
Toll Brothers witnessed decelerating new order growth through October and softening demand in November and December due to a housing slowdown, fueling concerns over the company’s forward margins, Horne said in a Monday note.
The company could see moderate order growth this year on the back of solid economic fundamentals and the recent decline in mortgage rates, the analyst said. Signs are positive, with the company’s website traffic near record highs and management exhibiting discipline, he said.
Although margin pressures could persist in the first half of 2019, lumber cost tailwinds are likely in the back half, Horne said. The analyst lowered the 2019 EPS estimate from $5.15 to $4.75.
Despite the challenges, Toll Brothers enjoys a “strong and flexible position to weather any potential economic challenges,” Horne said.
Even with a modest retrenchment in land spending, Toll Brothers’ cash flow generation could surge, making room for a more aggressive share buyback program that would boost EPS, according to Raymond James.
Toll Brothers shares were down 0.19 percent at $36.28 at the time of publication Monday.
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|Dec 2018||RBC Capital||Downgrades||Outperform||Sector Perform|
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