Previewing Toll Brothers (TOL)

Toll Brothers TOL reports 4th quarter earnings after the bell today, with Zacks expecting earnings per share of $3.88 and revenue of $3.22 billion. Wedbush thinks the company will beat estimates, but sees orders down 46% year over year, citing supply chain issues, higher mortgage rates dampening demand, and a lack of contractors. Specifically, the analysts say Toll Brothers lacks finish contractors, who work on the stages of housing projects.

However, we saw relatively strong home sales in October, the last month we have data for, with 632K units on a seasonally adjusted annual basis. September’s sales rate was revised lower from 603K to 588K, but even if a collapse in demand is on the horizon, the boom may have lasted a little longer than anticipated. Of course, with many expecting housing to suffer in the near future, Toll Brothers could be punished by the market for any guidance that doesn’t quell investor fear.

All is not lost—a J.P. Morgan analyst, Michael Rehaut, writes that homebuilding stocks are pricing in a mild recession already, and thinks that the Fed will soon slow its rate hikes, which will boost the homebuilding sector. He adds that “builders have outperformed during the last two mild recessions,” and upgraded TOL to Overweight from Neutral in the last few weeks.