Toll Brothers (TOL) is coming off a strong positive earnings surprise and is a Zacks #1 Rank (Strong Buy).
Company Description
Toll Brothers designs, builds and arranges financing for single- family detached and attached homes in luxury residential communities. It is also involved in building or converting existing rental apartment buildings into luxury homes. In addition, the company develops, owns, and operates golf courses and country clubs associated with various planned communities, as well as individual communities. It serves move-up, empty-nester, active-adult, age-qualified, and second-home buyers in 19 states in the United States. Toll Brothers, Inc. was founded in 1967 and is headquartered in Horsham, Pennsylvania.
Toll Brothers Beats Estimates in Two of Three Quarters
Toll Brothers topped the Zacks Consensus Estimate in two of the last three quarters. The average beat, including the quarter that came in $0.05 below expectations, of $0.017 translates to more than a 21% positive earnings surprise. The stock has moved higher by an average of about 1% following the earnings releases.
The January 2012 quarter was the lone miss of the Zacks Consensus Estimate as the company reported a loss of $0.02, $0.05 less than expected. The company also missed on the topline in reporting $322 million in revenue, approximately $37 million below expectations. In the session following the earnings release, the stock traded lower by more than 3%.
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Toll Brothers’ Most Recent Reported Earnings
On May 23, 2012 Toll Brothers reported revenue of $374 million up from $320 million reported in year ago quarter, an increase of 17%. Earnings per share came in at $0.10 compared to a loss of $0.06 in the year ago period, an increase of more than 267%. In the session following the earnings release, the stock traded higher by more than 3.4%.
Toll Brothers Sees Estimates Moving Higher
Estimates for Toll Brothers have been rising of late. The Zacks Consensus Estimate for 2012 for Toll Brothers stood at $0.33 as of April 2012. The consensus has thus moved higher to $0.41. Over the same time period estimates for 2013 have moved from $0.75 to $0.86. The implied earnings growth rate of more than 100% is just what aggressive growth investors are seeking.
Toll Brothers trades higher than the industry average for nearly every metric that aggressive growth investors tend to focus. The trailing twelve months PE of 150x is skewed due to some recent negative earnings. The same is true of the forward earnings multiple of 70x. The price to book multiple, a measure better suited for the homebuilder, is 1.82x and slightly ahead of the industry average of 1.78x. The price to sales multiple of 3x is sharply higher than the 0.7x industry average.
The Chart
A quick look at the chart shows a stock that has rallied strong with the market since bottoming in October of 2011. A slight retracement at the end of March into the start of April probed to be a wonderful buying opportunity. The sellers of May have not really made an impact on TOL, so any significant retracement should again be used as a buying opportunity. Toll Brothers is a Zacks #1 Rank (Strong Buy).
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service
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