Wednesday, May 28, 2014

Toll Brothers: About That Beat…

Good news goes a long way when the market isn’t expecting much, and that seems to be the case with Toll Brothers (TOL) today.

Nate Luke for The Wall Street Journal

Toll Brothers reported a profit of 35 cents, beating forecasts for 26 cents, on sales of $860.4 million, topping the Street consensus for $828 million. MKM Partners’ Megan McGrath and Ross Sparenblek note that Toll Brothers also “essentially raised its revenue guidance.” They explain:

Toll essentially raised its revenue guidance for the full year via higher ASP estimates. The company continues to expect closings of 5,100-5,850, but now expects ASPs of $690k-$720k (vs. prior $675k-$720k). Given the company’s long build cycle, we suspect that the higher guidance is likely more of a statement on the anticipated mix of closings rather than a signal that prices are being raised more aggressively.

McGrath and Sparenblek rate give Toll Brothers a Buy rating and a $43 price target.

Sterne Agee’s Jay McCanless and Annie Worthman have their doubts about whether business is really improving:

Housing revenues exceeded our estimates on purchased backlog, but without the benefit of a lower tax rate and other non-operating income benefits, we believe TOL’s F2Q14 EPS would have been below our $0.31 EPS estimate…

We believe EPS benefited from approximately $0.06/share of interest income and joint venture income above our estimate (related to the refinancing of a multi-family mortgage), and also had a $0.04/share benefit from a 30.2% income tax rate versus our 39.0% forecast.

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McCanless and Worthman rate Toll Brothers Underperform with a $28 price target.

Shares of Toll Brothers have gained 1.9% to $36.32 at 11:59 a.m., but its strength hasn’t really translated into big days for other home builders. KB Home (KBH) has gained 0.4% to $16.65, DR Horton (DHI) has risen 0.4% to $23.22 and Lennar (LEN) has dipped 0.3% to $40.37.

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