Toll Brothers
Shares hit all-time highs before a 9% pullback over the last week along with the selloff in the broad market. Toll Brothers is in a similar situation to many other homebuilders and cyclical stocks, where we see very low multiples. One interpretation is that the market expects earnings to decline and have peaked. Therefore, the bull case on these stocks and Toll Brothers rests on the companies exceeding in terms of earnings and guidance.
Inside the Numbers
In Q4, Toll Brothers reported $3.02 per share in earnings, a 97% increase from last year and a 20% increase in revenue to $3.1 billion. Analysts were looking for $2.48 per share in earnings and $2.9 billion in revenue. In total, the company delivered 3,341 homes, a 14% increase from last year.
Toll Brothers specializes in single-family homes and condominiums in luxury communities and was a beneficiary of increased demand for suburban real estate during the pandemic. Since then, it's maintained growth but struggled with some issues like labor shortages, soaring lumber prices, and other supply chain issues.
Despite these challenges, margins have expanded, indicating that buyers are absorbing higher prices. Another positive is its backlog of orders.
In Q1, the company expects to deliver 2,000 units with an average price per home of $875,000. For the next fiscal year, Toll Brothers is projecting 20% revenue growth.
Summing up the positive macro conditions was CEO Douglas Yearley Jr. on the conference call: "Demand remains very strong. The housing market continues to benefit from solid fundamentals, including favorable demographics, pent up demand from over a decade of underproduction of new homes, low mortgage rates, a tight resale market, and permanent changes to the way Americans view life, work and home." said CEO Douglas Yearley, Jr., in the earnings release.
The company has a forward P/E of 6.4 which is less than a third of the S&P 500. Overall, homebuilders look poised to continue leading the market higher.
