On Jan 28, we issued an updated research report on Toll Brothers Inc. (TOL).
Demand for new homes in 2014 reflected stable to moderately better trends with improvement in both the economy and employment. The stabilizing interest/mortgage rate acted as a further stimulus. The increasing momentum in the housing industry is also reflected in Toll Brothers’ business.
Toll Brothers has been posting strong revenues for the last three quarters of 2014 on the back of aggressive pricing and higher number of homes closed. The company’s top line was driven by its strategy to hold land in lucrative markets, increased geographic diversities, and product expansion.
Toll Brothers has been using its strong liquidity position to secure the most sought-after urban locations in the country like New York City Market, Northern New Jersey, Philadelphia and Washington D.C. The company’s solid land position places it well to meet growing demand, thus giving it a competitive edge over peers who are facing land availability constraints.
In fact, the increasing momentum of the housing market noted in the fourth quarter of fiscal 2014 continued into the first quarter of fiscal 2015. Management believes that as unemployment rates decline and consumer confidence improves, pent up demand will unleash. The company is in fact optimistic about the upcoming spring selling season as traffic improved in double digits in the first six weeks of fiscal 2015.
Moreover, the company expects to deliver a number of higher margin City Living projects in fiscal 2016. City Living includes homes in urban infill markets such as New York City. The company expects higher home deliveries in 2016 on the back of model openings planned in some communities in Texas and California in 2015 and consistent increase in community count.
However, higher expenses hurt the company’s margins in the fourth quarter of 2014 and are expected to remain a headwind in fiscal 2015 as well. The company expects margins to be flat in 2015 due to steeper costs and declining pricing power.
Toll Brothers carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks in the building/construction industry worth considering include Headwaters Inc. (HW), USG Corp. (USG) and TRI Pointe Homes, Inc. (TPH). All three companies sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment