Analyst Sees Promising Outlook For Toll Brothers Amid Strong Margins And Low Cancelation Rates

Credit Suisse analyst Dan Oppenheim reiterated an Outperform rating on the shares of Toll Brothers Inc TOL with a price target of $73.
The analyst has increased the 2023 EPS estimate to $10.25 from 8.40 and 2024 EPS estimate to $8.00 from $6.25 based on stronger margins and other income in 2023.
The revision is also based on higher deliveries in 2024 and the recovery in order trends, added the analyst.
According to the analyst, there is potential upside to 2023 based on cancelation rates remaining low and further improvement in construction cycles.
The analyst said that demand continued to be healthy in May, the start of TOL’s 3Q, with 3Q orders primarily translating into closings in 2024.
The analyst assumes that overall absorption will average 1.7 homes per community per month in 2023, up from 1.5 previously.
The analyst expects improvement in absorption in 2024 with 2024’s absorption getting back close to the absorption of 2.1 homes per community per month seen in 2022.
The key risk to the analyst’s forecast would be significant land impairments which the analyst does not see given the expectation for pricing and gross margins.
Price Action: TOL shares are trading lower by 1.4% at $67.52 on the last check Wednesday.
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