Toll Brothers' Margin Outlook Conservative - Analysts Explain Why

Toll Brothers, Inc. TOL shares are trading lower on Wednesday.

In the second quarter, the company’s home sales revenues were $2.65 billion, up 6% year over year; delivered homes were 2,641, also up 6%.

BofA Securities analyst Rafe Jadrosich reiterated a Buy rating with a price forecast of $150.

According to the analyst, the company’s beat is impressive. However, the gross margin outlook is conservative. 

For the third quarter, the company guided for an adjusted home sales gross margin of 27.7%, in line with the analyst’s forecast of 27.6%.

The analyst cautioned that Mid-Atlantic and Northeastern markets tend to grow more slowly, with potential earnings volatility given historically lumpy City Living sales. However, this segment is now a small portion of the company’s overall business.

RBC Capital Markets analyst Mike Dahl reiterated a Neutral rating on Toll, with a price forecast of $122.

According to the analyst, the company has consistently beat gross margin guidance in recent quarters, so while this could weigh on the stock, it also may be viewed as conservative.

Wedbush analyst Jay McCanless reiterated a Neutral rating on the company, with a price forecast of $105.

For the bulls, the analyst views the quarterly order beat, the third quarter guidance ahead of current consensus estimates, and the raised FY24 guidance as talking points.

Price Action: TOL shares are trading lower by 8.04% to $119.75 at last check Wednesday.

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