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Shares of Toll Brothers (TOL) have been strong performers lately, with the stock up 3.3% over the past month. The stock hit a new 52-week high of $58.11 in the previous session. Toll Brothers has gained 32.4% since the start of the year compared to the 12.4% move for the Zacks Construction sector and the 11.5% return for the Zacks Building Products - Home Builders industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on February 23, 2021, Toll Brothers reported EPS of $0.76 versus consensus estimate of $0.49.
For the current fiscal year, Toll Brothers is expected to post earnings of $4.96 per share on $8.31 billion in revenues. This represents a 45.88% change in EPS on a 17.38% change in revenues. For the next fiscal year, the company is expected to earn $6.49 per share on $9.33 billion in revenues. This represents a year-over-year change of 30.78% and 12.33%, respectively.
Toll Brothers may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Toll Brothers has a Value Score of A. The stock's Growth and Momentum Scores are A and C, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 11.6X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 14.1X versus its peer group's average of 9.6X. Additionally, the stock has a PEG ratio of 0.74. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Toll Brothers currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Toll Brothers meets the list of requirements. Thus, it seems as though Toll Brothers shares could still be poised for more gains ahead.
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