On Monday, Goldman Sachs (NYSE:GS) adjusted its stance on Toll Brothers (NYSE:TOL), moving the luxury homebuilder's stock from a Sell to a Neutral rating. Concurrently, the firm increased the price target to $124 from the previous $112. The revision reflects Toll Brothers' notable return on equity (ROE) improvement since the fiscal year 2019, with an estimation that it will reach 20.3% for the fiscal year 2024. This forecast places the company above the 18.5% average ROE for builders covered by Goldman Sachs.
The upgrade is attributed to Toll Brothers' performance, which has surpassed expectations despite the challenges of elevated mortgage rates. The company has managed to capture the strength in the underlying demand for homes, which continues to outpace supply. Goldman Sachs acknowledges that this success is partly due to initiatives specific to the company.
Contrary to initial predictions, Toll Brothers has shown resilience in selling more discretionary, higher-end homes. The market's anticipation of consumers delaying purchases until a decline in mortgage rates has not materialized as expected. Instead, Toll Brothers has maintained a robust sales trajectory.
Looking ahead, Goldman Sachs anticipates that new home sales will persist in outperforming expectations. This trend underpins the belief that Toll Brothers will continue to sustain revenues, profitability, and returns that exceed historical norms. The firm's updated outlook on the stock suggests confidence in Toll Brothers' ongoing market performance and its ability to navigate the current housing market dynamics.
In other recent news, Toll Brothers Inc. has been the subject of several analyst notes following a strong financial performance in the second quarter of fiscal year 2024. The luxury homebuilder reported record home sales revenue of $2.65 billion, a 6% increase year-over-year, and raised its full-year guidance to $10.23 billion. Despite these positive results, Citi reduced its price target for Toll Brothers stock to $133.00, maintaining a Neutral rating due to concerns about an estimated reduction in gross margins for the second half of the year.
On the other hand, Keefe, Bruyette & Woods raised their price target to $142 from $135, reaffirming an Outperform rating. They noted the company's significant 30% year-over-year growth in orders and expect a 25% growth in book value by the end of 2025. Similarly, Wolfe Research increased its price target for Toll Brothers to $135 from $123, also maintaining an Outperform rating.
Barclays (LON:BARC) Capital Inc. has an "Underweight" rating with a price target of $118.00, while Wells Fargo (NYSE:WFC) Securities offers a bullish outlook with a price target of $150.00. RBC Capital Markets holds an "Outperform" rating, with a price target of $130.00.
InvestingPro Insights
Following the recent Goldman Sachs rating upgrade, Toll Brothers (NYSE:TOL) presents several noteworthy metrics and strategic highlights that further illustrate its market position. According to InvestingPro data, Toll Brothers has a market capitalization of $12.25 billion and is trading at a low P/E ratio of 8.09, which is even more attractive considering its adjusted P/E ratio for the last twelve months as of Q2 2024 is 7.55. This suggests a favorable valuation relative to near-term earnings growth, with a PEG ratio of 0.46 indicating potential undervaluation based on future earnings projections.
InvestingPro Tips reveal strategic moves by management, such as aggressive share buybacks, and a consistent track record of dividend payments over the past 8 years, with dividends raised for the last 3 consecutive years. This demonstrates the company's commitment to shareholder returns. Moreover, analysts predict that the company will remain profitable this year, having been profitable over the last twelve months. The company's liquid assets also exceed its short-term obligations, showcasing a solid balance sheet.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available that delve into Toll Brothers' financials, market performance, and analyst forecasts. By using the coupon code PRONEWS24, readers can gain an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these insights, which can provide a deeper understanding of the company's long-term potential. Visit https://www.investing.com/pro/TOL for a total of 14 InvestingPro Tips that could further inform investment decisions.
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