MKM Previews Toll Q2 Earnings: 'The Selloff Has Been Overdone'

MKM's Megan McGrath has been getting ready for the Homebuilder earnings season. On Thursday, she issued a second-quarter earnings preview for Toll Brothers Inc TOL.

McGrath maintains a Buy rating and $38 price target ahead of the May 24 release.

"We believe that for TOL, the focus of this quarter will be primarily on the NYC market," McGrath said. "We believe it is well-understood that the NYC market has slowed (TOL, in fact, has been discussing this for a few quarters) and in our view this slowdown is a key factor behind TOL's recent share decline (TOL shares are down 19% ytd vs. the S&P 500 up 1% and a builder average down 10%). However, with City Living less than 5% of annual unit sales and less than 8% of revenues, we think the sell-off has been overdone."

Toll Brother shares fell from the $29 level over the last month, down nearly 8 percent.

As shares of Toll closed Thursday's session nearly unchanged, McGrath's price target represents potential upside of about 42 percent.