Toll Brothers (TOL) AI Stock Analysis

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Toll Brothers

(NYSE:TOL)

79Outperform

Toll Brothers has a strong financial foundation with zero debt and robust profitability, though recent revenue and cash flow growth have slowed. While technical indicators show positive momentum, valuation metrics suggest the stock is undervalued. The earnings call presented a balanced view with growth in contracts but higher expenses, resulting in a neutral sentiment. These factors combined give the stock a solid but cautious overall score.

Positive Factors

Earnings

Toll Brothers expects a mix to boost second-quarter gross margins, with more luxury deliveries and closings in the higher-margin Pacific region.

Positioning

Toll Brothers Inc. is still best positioned versus peers, which supports the analyst's overweight rating.

Valuation

Valuation remains attractive relative to other builders with similar ROE profiles.

Negative Factors

Financial Performance

Lower EPS estimates reflect impairments in the first quarter and softer spring season demand.

Orders

Orders were light, increasing 13% vs. a forecast of 27%.

Outlook

The F2Q outlook was below expectations, with weaker order, deliveries and higher SG&A.

Toll Brothers (TOL) vs. S&P 500 (SPY)

Market Cap

$10.79B

Dividend Yield0.87%

Average Volume (3M)1.78M

Price to Earnings (P/E)7.5

Beta (1Y)1.27

Revenue Growth5.86%

EPS Growth12.20%

CountryUS

Employees4,900

SectorConsumer Cyclical

Sector Strength67

IndustryResidential Construction

Share Statistics

EPS (TTM)1.75

Shares Outstanding99,437,000

10 Day Avg. Volume1,209,898

30 Day Avg. Volume1,784,104

Financial Highlights & Ratios

PEG Ratio-2.02

Price to Book (P/B)1.34

Price to Sales (P/S)0.00

P/FCF Ratio12.57

Enterprise Value/Market Cap1.17

Enterprise Value/Revenue0.30

Enterprise Value/Gross Profit4.33

Enterprise Value/Ebitda1.53

Forecast

1Y Price Target

$139.08

Price Target Upside27.18% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering13

Toll Brothers Business Overview & Revenue Model

Company DescriptionToll Brothers, Inc., together with its subsidiaries, designs, builds, markets, sells, and arranges finance for a range of detached and attached homes in luxury residential communities in the United States. The company operates in two segments, Traditional Home Building and City Living. It also designs, builds, markets, and sells condominiums through Toll Brothers City Living. In addition, the company develops, owns, and operates golf courses and country clubs; develops and sells land; and develops, operates, and rents apartments, as well as provides various interior fit-out options, such as flooring, wall tile, plumbing, cabinets, fixtures, appliances, lighting, and home-automation and security technologies. Further, it owns and operates architectural, engineering, mortgage, title, insurance, smart home technology, landscaping, lumber distribution, house component assembly, and manufacturing operations. The company serves move-up, empty-nester, active-adult, and second-home buyers. It has a strategic partnership with Equity Residential to develop new rental apartment communities in the United States markets. The company was founded in 1967 and is headquartered in Fort Washington, Pennsylvania.

How the Company Makes MoneyToll Brothers generates revenue primarily through the sale of homes and condominiums, focusing on luxury residential properties. The company earns money by acquiring land, developing residential communities, and selling completed homes to customers. Key revenue streams include the sale of single-family homes, condominiums, and luxury rental properties. Additionally, Toll Brothers benefits from strategic partnerships and joint ventures that expand its reach in the urban and high-rise markets. The company also offers ancillary services such as mortgage financing through its subsidiary, Toll Brothers Mortgage Company, which provides homebuyers with mortgage financing options, contributing to its revenue base. Land sales and other related activities, such as the development of master-planned communities, further supplement the company's income.

Toll Brothers Financial Statement Overview

Summary

Toll Brothers has demonstrated strong financial performance with consistent revenue growth and improving profitability. The balance sheet is robust with no debt, enhancing financial stability, and strong returns on equity. However, recent data shows a slight decline in revenue and cash flow, which requires attention.

Income Statement

Very Positive

Toll Brothers has shown a strong financial performance in recent years, with consistent revenue growth and improving profitability. The gross profit margin and net profit margin have been healthy, reflecting efficient cost management. The company has maintained a solid EBIT and EBITDA margin, indicating strong operational performance. However, the recent TTM data shows a slight decline in revenue compared to the previous year, which is a point of concern.

Balance Sheet

Very Positive

The balance sheet is robust with no debt in the latest TTM period, which significantly enhances financial stability. The debt-to-equity ratio has improved over the years due to zero debt in the latest period. The return on equity is strong, and the equity ratio remains solid, indicating a stable financial structure. The company has managed to increase its stockholders' equity, showcasing effective reinvestment strategies.

Cash Flow

Very Positive

The cash flow statement reflects a strong operational cash flow, which exceeds net income, indicating good cash generation ability. The free cash flow has shown positive growth over the years, although there was a slight decline in the latest TTM period. The free cash flow to net income ratio is healthy, but the growth rate in free cash flow needs attention as it has decreased recently.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
10.76B	10.85B	9.99B	10.28B	8.79B	7.08B
	Gross Profit
2.91B	3.02B	2.63B	2.49B	1.94B	1.42B
	EBIT
1.95B	2.04B	1.72B	1.51B	1.02B	550.26M
	EBITDA
2.01B	2.12B	1.80B	1.59B	1.10B	676.51M
	Net Income Common Stockholders
1.51B	1.57B	1.37B	1.29B	833.63M	446.62M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
574.83M	1.30B	1.30B	1.35B	1.64B	1.37B
	Total Assets
13.62B	13.37B	12.53B	12.29B	11.54B	11.07B
	Total Debt
2.87B	2.96B	2.98B	3.33B	3.56B	3.96B
	Net Debt
2.30B	1.66B	1.68B	1.98B	1.92B	2.59B
	Total Liabilities
5.81B	5.68B	5.71B	6.27B	6.20B	6.14B
	Stockholders Equity
7.80B	7.67B	6.80B	6.01B	5.30B	4.88B
Cash Flow		Free Cash Flow
818.99M	936.52M	1.19B	915.09M	1.24B	898.55M
	Operating Cash Flow
896.37M	1.01B	1.27B	986.82M	1.30B	1.01B
	Investing Cash Flow
-227.71M	-167.62M	-150.60M	-153.18M	-4.24M	-177.84M
	Financing Cash Flow
-815.60M	-816.46M	-1.17B	-1.12B	-1.01B	-753.31M

Toll Brothers Technical Analysis

Technical Analysis Sentiment

Neutral

Last Price109.36

Price Trends

50DMA

102.46

Positive

100DMA

114.27

Negative

200DMA

130.29

Negative

Market Momentum

MACD

1.40

Negative

RSI

64.63

Neutral

STOCH

81.99

Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TOL, the sentiment is Neutral. The current price of 109.36 is above the 20-day moving average (MA) of 100.50, above the 50-day MA of 102.46, and below the 200-day MA of 130.29, indicating a neutral trend. The MACD of 1.40 indicates Negative momentum. The RSI at 64.63 is Neutral, neither overbought nor oversold. The STOCH value of 81.99 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for TOL.

Toll Brothers Risk Analysis

Toll Brothers disclosed 29 risk factors in its most recent earnings report. Toll Brothers reported the most risks in the “Production” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Toll Brothers Peers Comparison

Overall Rating

UnderperformOutperform

Sector (61)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
TOL	79 Outperform	$10.79B	7.47	20.38%	0.87%	5.86%	12.20%
NVR	78 Outperform	$21.58B	15.23	38.25%	―	8.81%	1.79%
DHI	77 Outperform	$38.75B	9.54	17.83%	1.11%	-4.71%	-10.19%
PHM	76 Outperform	$21.35B	7.52	25.52%	0.79%	8.86%	13.60%
TMHC	74 Outperform	$6.10B	7.12	15.97%	―	12.19%	23.15%
LEN	72 Outperform	$29.53B	8.20	14.97%	1.78%	2.03%	-3.80%
Sector *	61 Neutral	$6.93B	11.84	2.89%	3.91%	2.59%	-21.68%

* Consumer Cyclical Sector Average

Performance Comparison

TOL

Toll Brothers

109.36

-16.99

-13.45%

DHI

DR Horton

126.36

-20.61

-14.02%

LEN

Lennar

112.37

-41.36

-26.90%

NVR

7,402.64

-148.83

-1.97%

PHM

PulteGroup

106.45

-8.90

-7.72%

TMHC

Taylor Morrison

61.23

1.42

2.37%

Toll Brothers Earnings Call Summary

Earnings Call Date:Feb 18, 2025

(Q1-2025)

% Change Since: -10.15%|

Next Earnings Date:May 20, 2025

Earnings Call Sentiment Neutral

The earnings call presented a mixed outlook with several positive aspects such as an increase in net contracts, low cancellation rates, and strong adjusted gross margin. However, these were offset by challenges such as net income below expectations, higher SG&A expenses, and market-specific challenges. The company's strategic approach to managing spec homes and land acquisitions reflects a cautious yet optimistic outlook. This balance of positive and negative factors indicates a neutral sentiment overall.

Q1-2025 Updates

Positive Updates

Increase in Net Contracts

The company signed 2,307 net contracts for $2.3 billion in the first quarter, up 13% in units and 12% in dollars compared to last year.

Low Contract Cancellation Rate

The contract cancellation rate remained low at 2.4% of the beginning backlog, indicating strong buyer commitment.

Strong Adjusted Gross Margin

The first quarter adjusted gross margin was 26.9%, which was 65 basis points better than guidance.

Healthy Deposit Conversion Ratio

The deposit conversion ratio was 82%, significantly higher than the five-year average of 70%.

Solid Land Position

The company owned or controlled approximately 56,000 lots, with 56% optioned, providing flexibility and selectivity in land acquisition.

Extended Credit Facility

The company extended the maturities of its credit facilities to February 2030 and upsized its revolver to $2.35 billion.

Negative Updates

Net Income Below Expectations

Net income and earnings per share came in below expectations due to impairments and a delay in the sale of a stabilized apartment property.

Higher SG&A Expenses

SG&A expense as a percentage of home sales revenue was 13.1%, or 40 basis points above guidance, due to higher than anticipated selling and marketing expenses.

Challenges in Specific Markets

Mixed demand results were observed, with pressure on sales in certain markets due to affordability constraints and growing inventories.

Impairments and Write-offs

Write-offs in the home sale gross margin totaled $16.4 million, with impairments related to pre-development costs and operating communities.

Company Guidance

During the Toll Brothers First Quarter Fiscal Year 2025 Conference Call, several key metrics were highlighted. The company reported deliveries of 1,991 homes at an average price of $925,000, generating home sales revenue of $1.84 billion. The adjusted gross margin was 26.9%, which was 65 basis points better than expected. However, the SG&A expense ratio was 13.1%, surpassing guidance by 40 basis points. The company signed 2,307 net contracts valued at $2.3 billion, marking a 13% increase in units and a 12% rise in dollar value compared to the previous year. The contract cancellation rate was low at 2.4%. Toll Brothers maintained its full-year guidance, expecting deliveries between 11,200 and 11,600 homes, with an average price ranging from $945,000 to $965,000, and an adjusted gross margin of 27.25%. Additionally, the company projected SG&A expenses to account for 9.4% to 9.5% of home sales revenue for the full year. The company's balance sheet remains healthy, with $2.3 billion in liquidity and a net debt to capital ratio of 21.1%. They also plan to repurchase $500 million in shares throughout the year.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.