On Monday, Keefe, Bruyette & Woods updated their outlook on Toll Brothers (NYSE: NYSE:TOL), a luxury homebuilding company, by raising the stock price target to $142 from $135, while reaffirming an Outperform rating on the stock.
The adjustment comes after Toll Brothers reported fiscal second-quarter results that surpassed expectations in several key areas including deliveries, margins, and other income. Moreover, the company saw a significant 30% year-over-year growth in orders, doubling the analyst's projected 15% increase.
Despite the strong quarterly performance, Toll Brothers' shares experienced an 8% decline since the earnings announcement, a sharper drop compared to its peers who saw an average decrease of 1.6%. This decline is attributed to investor concerns over a projected dip in gross margin due to the mix of speculative homes sold. However, the overall trends for Toll Brothers are considered healthy by the analyst.
The firm's positive stance on Toll Brothers is further supported by the comparison to its large-cap peers, with Toll Brothers trading at 1.58 times its 2024 book value and 1.37 times its estimated 2025 book value. This valuation is notably lower than its peers, which trade between 1.7 to 2.1 times book value. Keefe, Bruyette & Woods project a 25% growth in book value by the end of 2025 and anticipate a return on equity between 17-20%.
The analyst's outlook includes expectations of continued dividend payments and suggests that the current price target represents a 20% upside potential for Toll Brothers' stock. Moreover, there is a possibility for greater gains if future estimates turn out to be conservative. The firm's maintained Outperform rating reflects confidence in Toll Brothers' market position and financial prospects.
InvestingPro Insights
Following the update from Keefe, Bruyette & Woods on Toll Brothers, current InvestingPro data reveals additional facets of the company's financial health and market position. Toll Brothers, with a market capitalization of $12.33 billion, is trading at a P/E ratio of 8.1, indicating a potentially undervalued status relative to near-term earnings growth, as evidenced by a PEG ratio of just 0.47.
This suggests that the stock may offer growth at a reasonable price. Moreover, the company's commitment to shareholder returns is highlighted by a dividend yield of 0.76% and a notable 9.52% dividend growth in the last twelve months.
InvestingPro Tips for Toll Brothers also shed light on the company's performance and investor sentiment. The company has raised its dividend for three consecutive years and maintained dividend payments for eight consecutive years, reinforcing its reputation for returning value to shareholders.
With analysts predicting profitability this year and a solid track record of profitability over the last twelve months, Toll Brothers appears to be on a stable financial footing. It's also worth noting the significant price uptick over the last six months, with a 39.11% total return, which may interest investors looking for momentum.
For readers seeking a deeper dive into Toll Brothers' investment potential, additional InvestingPro Tips are available, including insights on the company's trading volatility, debt levels, and longer-term returns. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to a comprehensive list of 14 additional InvestingPro Tips to inform your investment decisions.
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