Toll Brothers, Inc. TOL touched a new 52-week high of $73.44 on Dec 8, 2021. The stock pulled back to end the trading session at $72.45, up 1.7% from the previous day’s closing price of $71.24. The uptick was probably due to its solid fourth-quarter fiscal 2021 earnings release. (Read more: Toll Brothers Q4 Earnings & Revenues Beat, Demand High)
The company has been benefiting from the strategy of broadening the product lines, price points and geographies. Also, a favorable housing backdrop, lack of competition in the luxury new home market and buyout synergies are adding to the bliss.
Toll Brothers — a Zacks Rank #2 (Buy) stock — has gained 64% in the past year, outperforming the Zacks Building Products – Home Builders industry, Zacks Construction sector, and S&P 500 Index’s 37.3%, 36.6%, and 30.5% growth, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Meanwhile, earnings estimates for fiscal 2022 have gained 1.6% over the past 30 days. This indicates 33.2% year-over-year growth. The company’s earnings surpassed analysts’ expectations in the trailing seven quarters.
This major luxury homebuilder has an impressive VGM Score of A, supported by a Value Score of A and Growth Score of B. Back-tested results show that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 handily outperform other stocks.
Let’s delve deeper into the factors supporting growth.
Favorable Housing 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.
For fiscal 2021, the number of net signed contracts or orders was 12,472 units, up 26% year over year. The value of net signed contracts was $11.54 billion, reflecting a 44% increase from the year-ago quarter. At fiscal 2021-end, it had a backlog of 10,302 homes, representing a 32% year-over-year increase. Potential revenues from backlog also grew 49% year over year to $9.50 billion. This provides more visibility into 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. 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. On Aug 12, it acquired an NV-based privately-held homebuilder, StoryBook Homes, thereby strengthening its foothold in the Las Vegas housing market.
Limited Competition & Affordable Luxury Homes: Toll Brothers mostly offers luxury homes and its communities are located in prosperous suburban areas with easy access to major cities. Luxury homes generally face limited competition. The company mostly caters to luxury move-up buyers who already possess 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. These communities are expected to be more capital efficient.
Upbeat View: Toll Brothers is optimistic about business growth, given solid demand trends owing to an improved housing market and acquisitions. During fourth-quarter fiscal 2021, the company issued an impressive first-quarter and fiscal 2022 guidance.
For first-quarter fiscal 2022, Toll Brothers expects home deliveries of 2,000 units, indicating a rise from 1,777 units delivered in the prior-year period. Also, average price is likely to be $865,000-$885,000 (suggesting a rise from $793,900 a year ago). Adjusted home sales gross margin is expected to be 25.5%, implying an increase from 22.9% in the year-ago period. SG&A expenses are estimated to be 14.1% of home sales revenues (pointing to fall from 14.9% a year ago).
For fiscal 2022, home deliveries are anticipated to be 11,250-12,000 units, at an average price of $875,000-$895,000. In fiscal 2021, home deliveries were 9,986 units at an average price of $844,400. Toll Brothers expects adjusted home sales gross margin of 27.5% compared with 25% reported in fiscal 2021. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2022 are projected to be 10.5% (suggesting fall from 10.9% in fiscal 2021).
Other Key Picks
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’ shares have gained 48.5% year to date compared with the industry’s 23.6% rally. Earnings are expected to rise 23.7% in fiscal 2022.
TRI Pointe Group Inc. TPH currently carries 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’s shares have surged 61.6% year to date. Earnings for 2021 and 2022 are expected to rise 80.2% and 9.6%, respectively.
Meritage Homes Corporation MTH currently sports a Zacks Rank #1. 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.
MTH has gained 38.6% year to date. Earnings are expected to grow 74.4% in 2021 and 22.2% in the next year.
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Toll Brothers Inc. (TOL): Free Stock Analysis Report
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