Toll Brothers, Inc. (TOL - Analyst Report) is cashing in on the momentum in the housing market. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in both Fiscal 2015 and 2016.
Toll Brothers is the largest luxury home builder in America. It operates in 19 states on both coasts and the District of Columbia.
The company builds luxury single family homes, attached homes such as townhouses and condominiums, and master planned resort-style golf communities. It operates in both urban and suburban areas.
Big Beat in Fiscal Q1
On Feb 24, Toll Brothers reported its fiscal first quarter results and blew by the Zacks Consensus Estimate by 14 cents. Earnings were $0.44 compared to the consensus at $0.30.
Revenue rose 33% to $853.5 million and deliveries jumped 18% to 1,091 units compared to the fiscal first quarter of 2014.
Toll Brothers has been able to capitalize on rising housing prices in the urban areas. The average price of homes delivered rose to $782,000 from $693,600 in the first quarter of 2014.
Other fundamentals also improved in the quarter. Net signed contracts rose 16% to 1,063 units compared to the year ago quarter with the average price of net signed contracts of $821,500, up from $766,100 a year ago.
Average price was boosted by new business in California, however. California was 29% of the signed contracts this quarter, with an average price of $1.1 million. The California gold rush is still on.
Texas was also a big contributor, with 11% of the signed contracts coming from that state, with a heavy emphasis on the Dallas region.
Gross margin also improved to 27.3% from 24.4% in the first quarter of last year.
Raised Lower End of the Guidance Range
With the employment market improving and mortgage rates still near all-time lows, economic conditions are ripe for Toll Brothers to cash in.
The company raised the lower end of its sales guidance range to between 5,200 and 6,000 homes with an average price of $725,000 to $760,000 from its prior range of 5,000 to 6,000 homes with an average price of $710,000 to $760,000.
In fiscal 2014 it delivered 5,397 homes with an average price of $725,000.
The analysts are bullish on the full year with 3 estimates moving higher in the last month. That has pushed fiscal 2015's Zacks Consensus Estimate up to $2.09 from $2.06.
That is earnings growth of 15.9% as the company made just $1.80 last year.
Analysts are also optimistic about 2016, with further earnings growth of 27.3% expected.
Housing Stock Rally Back On?
In 2012, housing stocks were the hottest stocks in the S&P 500. But that was when the shares were coming off the Great Recession lows.
Still, shares of Toll Brothers have been on a tear so far in 2015, and recently hit new 52-week highs.
Shares aren't as cheap as they were in 2012 as the company now sports a forward P/E of 19.1.
But for investors looking for a play on the housing recovery, and with the upper bracket home buying market still very healthy, Toll Brothers is one stock to keep on your short list.
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