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Toll Brothers (TOL) Gains Ground in Homebuilding: Here's How

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·5 min read
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  • TOL
  • MTH
  • TPH
  • BZH

Indeed, the U.S. housing market has been hot, given historically low mortgage rates and the increasing trend of consumers to invest more in homes amid the pandemic. Although sustained supply chain disruptions and labor shortages have been taking a toll on the industry, buyers continue to show their appetite for new homes.

In this scenario, buying a stock from the solid Zacks Home Builders industry will be an apt decision for an investor. In this regard, one of the prominent homebuilders, Toll Brothers Inc. TOL is worth mentioning. Shares of Toll Brothers — a major luxury home builder — has rallied 48.3% so far this year, outperforming the industry’s 24.9% upside.

Earnings estimates have risen over the past few weeks, suggesting that sentiments on Toll Brothers are moving in the right direction. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2021 earnings has been revised upward to $6.14 per share from $6.12. Also, earnings estimates for fiscal 2022 have inched up 0.2% in the same time frame. This signifies bullish analysts’ sentiments.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Here are a few factors that are driving this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Toll Brothers also has a favorable VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2, offer the best investment opportunities to investors.

What’s Going in Toll Brother’s Favor?

Favorable Industry Backdrop

The U.S. housing market is witnessing an impressive comeback on major data points post COVID-led shutdowns, with home sales rising at a record pace, defying low inventory levels, broad-based public health risks and supply chain woes. October home sales data depicts the true picture of the same. New and existing home sales for the month grew 0.4% and 0.8% from the prior month, respectively. Precisely, sales of previously owned U.S. homes rose unexpectedly in October to the highest level since the start of the year, pointing to healthy demand.

During fiscal third-quarter 2021, the number of net signed contracts or orders was 3,154 units, up 11% year over year. The value of net signed contracts was $2.98 billion, reflecting a 35% increase from the year-ago quarter. At fiscal third quarter-end, it had a backlog of 10,661 homes, representing a 47% year-over-year increase. Potential revenues from backlog also grew 55% year over year to $9.44 billion. This provides more visibility for strong top-line growth going forward.

Major Land Position

Toll Brothers has secured some of the most sought-after urban locations in the country, where land is scarce and approvals are not easy to obtain. Toll Brothers is using its strong liquidity position to secure the most sought-after urban locations in the country like New York City Market, Northern New Jersey, Washington DC and Philadelphia. The company’s solid land position places it well to meet the growing demand in these regions, thus giving it a competitive edge over peers who are presently facing land availability constraints.

The company has been expanding geographically via selective acquisitions. On Aug 12, it acquired an NV-based privately-held homebuilder, StoryBook Homes, thereby strengthening its foothold in the Las Vegas housing market. In September 2020, Toll Brothers expanded into the Colorado Springs market through the acquisition of Keller Homes, one of the top private homebuilding companies in Colorado Springs.

Impressive Earnings Surprise History & Earnings Growth Expectation

Toll Brothers has a solid earnings surprise history. The company surpassed earnings estimates in 12 of the trailing 13 quarters. Also, TOL has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2021 as well as fiscal 2022 earnings of $6.14 and $8.83 per share, which indicates 80.6% and 43.9% year-over-year growth, respectively.

Other Top-Ranked Stocks From the Same Industry:

Beazer Homes USA, Inc. BZH currently sports a Zacks Rank #1. This Atlanta-based homebuilder continues to gain from strong operational execution and persistent strength in the housing market.

Beazer Homes has gained 326% year to date (YTD), faring better than the industry’s 24.9% rally. Earnings are expected to grow 23.7% in fiscal 2022.

TRI Pointe Group Inc. TPH currently sports a Zacks Rank #1. This Irvine, CA-based homebuilder designs, constructs, and sells single-family detached and attached homes in the United States. Robust demand and pricing as well as improved operating leverage have been driving TRI Pointe's performance. Cost-cutting initiatives implemented earlier this year and focus on entry-level buyers have been adding to the positives.

TRI Pointe has gained 45.9% YTD. Earnings for 2021 and 2022 are expected to grow 80.2% and 9.6%, respectively.

Meritage Homes Corporation MTH: Meritage Homes currently carries a Zacks Rank #2. Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor.

Meritage Homes has gained 39.3% YTD. Earnings are expected to grow 74.6% in 2021 and 21.2% for the next.


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

Meritage Homes Corporation (MTH) : Free Stock Analysis Report

Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report

Tri Pointe Homes Inc. (TPH) : Free Stock Analysis Report

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