We expect Toll Brothers, Inc. TOL to beat expectations when it reports fourth-quarter and full-year fiscal 2015 results on Dec 8, before the market opens. Last quarter, it had posted a negative earnings surprise of 16%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Toll Brothers is likely to beat earnings this quarter because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 3.61%. This is very meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: Toll Brothers carries a Zacks Rank #3 (Hold).
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Toll Brothers’ Zacks Rank #3 and +3.61% ESP makes us confident of an earnings beat this quarter.
Factors to Consider This Quarter
Strong order trends drove results at the company through the first three quarters of fiscal 2015 and are expected to continue into the fiscal fourth quarter as well. The company is also witnessing strong demand and pricing power in California. These positives are likely to continue in the upcoming quarter.
Toll Brothers reported lower home deliveries and a lower-than-expected increase in the average price of homes delivered in the third quarter of fiscal 2015. Moreover, it narrowed its guidance for the number of homes delivered and community count for 2015 during the third-quarter 2015 conference call. As such, we do not expect any significant improvement in deliveries in the upcoming quarter.
Other Stocks to Consider
Here are some companies in the broader construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat:
KB Home KBH, with an Earnings ESP of +3.92% and a Zacks Rank #3.
Louisiana-Pacific Corp. LPX, with an Earnings ESP of +81.82% and a Zacks Rank #3.
KBR, Inc. KBR, with an Earnings ESP of +6.67% and a Zacks Rank #2.
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