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Toll Brothers, Inc. (NYSE:TOL): Are Analysts’ Earnings Forecast Signalling Trouble Ahead?

Jacob Boyd

The latest earnings release Toll Brothers, Inc.’s (NYSE:TOL) announced in October 2018 suggested that the business gained from a strong tailwind, leading to a double-digit earnings growth of 40%. Below, I’ve laid out key numbers on how market analysts perceive Toll Brothers’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

Check out our latest analysis for Toll Brothers

Analysts’ expectations for next year seems pessimistic, with earnings decreasing by -6.9%. Beyond this, earnings are predicted to continue to be below today’s level, with a decline of -8.5% in 2021, eventually reaching US$684m in 2022.

NYSE:TOL Future Profit January 7th 19

While it is useful to be aware of the growth rate year by year relative to today’s level, it may be more beneficial determining the rate at which the business is moving on average every year. The benefit of this technique is that we can get a bigger picture of the direction of Toll Brothers’s earnings trajectory over the long run, irrespective of near term fluctuations, be more volatile. To calculate this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is -3.5%. This means, we can assume Toll Brothers will chip away at a rate of -3.5% every year for the next few years.

Next Steps:

For Toll Brothers, there are three fundamental factors you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is TOL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TOL is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of TOL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.