Toll Brothers (TOL) Stock Up 29% in 6 Months: More Upside Left?
Toll Brothers, Inc. TOL has been benefiting from the robust demand for homes and limited competition in the luxury housing market. Also, significant land position and its extending geographical boundaries have been adding to the positives.
Notably, shares of Toll Brothers have gained 28.8% over the past six months compared with the industry’s 5.9% rally. The price performance was backed by a solid earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in 12 of the trailing 14 quarters. Earnings estimates for 2021 have moved up 8.3% in the past 30 days. The positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Major Growth Drivers
Competitive Advantage in Luxury Housing Market: Toll Brothers mostly offers luxury homes and its communities are located in prosperous suburban areas with easy access to major cities. Also, luxury homes generally face limited competition.
The company mostly caters to luxury move-up buyers, who already have a residence and are looking for a shift to larger and better homes. These homebuyers are less sensitive to price changes. Toll Brothers enjoys greater pricing power than other homebuilding companies. At the same time, the company has been strategically adding more affordable luxury communities in view of the current demographic trends, and expanding footprint and customer base.
Also, the company improved the option-to-owned land ratio at fiscal first quarter-end to 46% optioned and 54% owned versus 43% optioned and 57% owned at fiscal 2020-end. It has been focusing on lower price and higher volume communities, which generate increased return on investment.
Remarkable Land Positions & Key Buyouts: 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 growing demand in these regions, thus lending it a competitive edge over peers who are presently facing land availability constraints.
Toll Brothers has been expanding geographically via selective acquisitions. In September 2020, the company expanded into the Colorado Springs market through the acquisition of Keller Homes, one of the top private home building companies in Colorado Springs. Importantly, it has also acquired the rights to purchase more than 300 lots that Keller controls throughout Colorado Springs. The company also acquired all assets and operations of Thrive Residential — an urban in-fill builder with operations in Atlanta, GA and Nashville, TN— during second-quarter fiscal 2020.
Toll Brothers is now targeting community count growth of 320 for second-quarter fiscal 2021 and 340 for fiscal 2021, which will reflect accelerating land acquisition and development to meet the resurgence in homebuyer demand. The company’s extensive geographic footprint and deep land position will allow it to grow its community count in fiscal 2021 and 2022, attributable to the sales of existing communities faster than anticipated.
Improved Housing Market: Declining mortgage rates have been driving the U.S. residential market of late. Toll Brothers has also benefited from the same.
In first-quarter fiscal 2021, the number of net signed contracts or orders was 2874 units, up 59.1% year over year. The value of net signed contracts was $2.51 billion, reflecting a 68.5% increase from the year-ago quarter. At fiscal first-quarter-end, it had a backlog of 8,888 homes, representing a 37.6% year-over-year increase. Potential revenues from backlog also grew 37% year over year to $7.47 billion.
The robust demand for homes has been a boon for Toll Brothers and companies like D.R. Horton, Inc. DHI, KB Home KBH and Lennar Corporation LEN in the same industry, each sporting a Zacks Rank #2.
Return to Shareholders: The company plans to drive shareholder value through regular share repurchases and dividend payments. It intends to drive shareholder value by paying out dividends as well as returning cash to through share repurchases. Notably, at fiscal first quarter-end, the company repurchased 4 million shares for an aggregate purchase price of approximately $179.4 million. On Mar 9, 2021, the company announced a 54% hike in its quarterly dividend to 17 cents per share (or 68 cents annually) from 11 cents per share (or 44 cents annually).
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
To read this article on Zacks.com click here.
