Toll Brothers (TOL) At 52-Week High: Can It Scale Higher?

On Jun 20, shares of Toll Brothers Inc. (NYSE:TOL) rallied to a 52-week high of $39.75. The stock pulled back to end the trading session at $39.02.

The nation's leading builder of luxury homes has seen its shares rise roughly 25.9% so far this year, as against a 9.7% increase for the construction sector over the same period. That said, we have noticed that the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames.

The stock has a market cap of $6.34 billion. Average volume of shares traded over the last three months was approximately 1.91 million. Over the last one week, the Zacks Consensus Estimate for Toll Brothers moved up 0.3% to $3.14 for fiscal 2017. Earnings for this Zacks Rank #3 (Hold) company are expected to grow 43.2% in fiscal 2017. We also note that the company displays long-term earnings growth rate of 11.2%, reinstating customer confidence in the stock.

Other homebuilding stocks that attained a 52-week high in yesterday’s session include Masco Corporation (NYSE:MAS) , Lennar Corporation (NYSE:LEN) and NVR, Inc. (NYSE:NVR) . This could probably be attributable to Lennar’s stellar second quarter fiscal 2017 performance, which raised investors’ confidence about the overall industry.

Notably the Zacks classified Building Products - Home Builders industry gained 25.7% year to date, higher than the S&P 500 Index’s 10%. The above expectation results recently reported by Lennar Corporation adds to the positive momentum.

What’s Driving Toll Brothers?

The 2017 outlook for homebuilding is quite compelling given historically low mortgage rates, healthy demand, consistent job growth, along with solid homebuilders’ confidence. Although homebuilders’ confidence dipped slightly in June, it remained above the much confident level of 50. The Zacks Industry Rank for homebuilding currently stands at #55 (top 21%) which signals that the stocks in the industry are likely to benefit from favorable broader factors in the immediate future.

Lack of competition in the luxury new home market is a huge advantage for Toll Brothers. Luxury homes generally face limited competition. The company mostly caters to luxury move up buyers, who are less sensitive to price changes. Thus, Toll Brothers enjoys greater pricing power than other homebuilding companies.

Also, given the significant pent up housing demand, Toll Brothers has secured some of the most sought-after urban locations in the country, where land availability is low and approvals are hard to obtain. The company’s solid land position places it well to meet growing demand in these regions, thus lending it a competitive edge over peers who are presently faced with land availability constraints.

Also, Toll Brothers came up with a stellar show in the first half of fiscal 2017, with earnings increasing 26.4% from the prior-year period on the back of higher revenues. In the first half of fiscal 2017, total revenues of $2.28 billion rose 12% and deliveries of 2,828 units increased 19% from the prior-year period. The company’s net signed contracts increased 19% in dollars and 24% in units.

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Masco Corporation (MAS): Free Stock Analysis Report

Lennar Corporation (LEN): Free Stock Analysis Report

Toll Brothers Inc. (TOL): Free Stock Analysis Report

NVR, Inc. (NVR): Free Stock Analysis Report

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