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Bull of the Day: Toll Brothers (TOL)

Tracey Ryniec
·3 mins read

Toll Brothers, Inc. (TOL) is riding the wave of the Millennial buyers, record low mortgage rates and migration due to the pandemic. This Zacks Rank #1 (Strong Buy) just reported its highest third quarter net contracts ever.

Toll Brothers is a luxury home builder. It started business in 1967 and now builds for first-time, move-up, empty-nester, active-adult, affordable luxury and second home buyers. It also serves urban and suburban renters.

It operates in 24 states.

Big Beat in the Fiscal Third Quarter

On Aug 25, Toll Brothers reported its 2020 fiscal third quarter and blew by the Zacks Consensus Estimate by $0.21. Earnings were $0.90 versus the consensus of $0.69.

Revenue fell 7% to $1.63 billion as deliveries rose 1% to 2,022.

Net signed contract homes were up 26% to a record 2,833 homes. Contract value was up 18% to a record third quarter of $2.21 billion.

Adjusted gross margin, which excludes interest and inventory writedowns, jumped to 21.9%.

This strength has continued into August.

"We attribute the surge in demand to a number of factors, including historically low interest rates, a continued undersupply of homes, and consumers focused more than ever on the importance of home," said CEO Douglas C. Yearley, Jr.

Strong Guidance for Q4

Toll Brothers did give a fourth quarter outlook.

It expects Q4 deliveries between 2,400 and 2,550 homes with an average price between $815,000 and $835,000.

Gross margins are expected to be elevated at 21.5%.

The analysts are bullish too.

2 estimates have been raised since the report, pushing the Zacks Consensus Estimate up to $3.03 from $2.72 in the last month.

2 estimates have also been raised for Fiscal 2021. That pushed the Zacks Consensus up to $4.22 from $4.00 in the last 7 days. That's a gain of 39.3% over 2020.

Shares Rally Off Coronavirus Sell-Off

Shares took a dive during the March coronavirus sell-off but have rallied 27.5% over the last 3 months.

Shares are still attractively priced, however, with a forward P/E of 14.4.

It's still paying a dividend, currently yielding 1%.

The home builders are in the Top 1% of all Zacks ranked industries.

9 home builders are Zacks Rank #1 (Strong Buys) including Beazer Homes (BZH), DR Horton (DHI) and Pulte Group (PHM).

Millennials are reaching peak first-time home buying years now. Combined with record low mortgage rates, that has lit a fire under the housing market.

For those looking to play this trend, Toll Brothers is one to keep on your short list.

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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
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