RBC Capital Markets has updated its outlook on Toll Brothers Inc. (NYSE: NYSE:TOL), a luxury homebuilding company, raising the price target to $143.00 from the previous $130.00. The firm maintained an Outperform rating on the stock.
The adjustment follows a revision of the fiscal year 2024 earnings per share (EPS) estimates, which increased by approximately 5% to $14.74. This figure surpasses the company's own guidance range of $14.50 to $14.75.
The increase in EPS expectations is attributed to a better-than-anticipated gross margin percentage in the third quarter. However, RBC anticipates a reversion in the fourth quarter due to changes in the regional and specification mix of homes. Despite this, the firm suggests that their estimates might still be conservative.
RBC's revised outlook also takes into account a lower number of orders following a miss in the third quarter and a lukewarm demand response to the recent declines in interest rates. This contrasts with management's positive remarks regarding customer traffic in August. The tempered order forecast is balanced by improvements in gross margin percentage, share repurchases, and better conversion of the company's backlog into sales.
In their commentary, RBC noted that while the overall rally in homebuilding stocks has been strong despite weak demand indicators, making valuations generally unattractive, Toll Brothers is favored on a relative basis within the sector.
InvestingPro Insights
As Toll Brothers Inc. (NYSE: TOL) garners a favorable outlook from RBC Capital Markets, real-time data from InvestingPro further illuminates the company's financial health and market performance. With a robust market capitalization of $14.24 billion, Toll Brothers is trading at a P/E ratio of 9.61, indicating that the stock might be valued appealingly in relation to its earnings. The company's revenue for the last twelve months as of Q3 2024 stands at $10.53 billion, with a gross profit margin of 28.51%, showcasing its ability to maintain profitability.
InvestingPro Tips highlight that Toll Brothers has not only raised its dividend for three consecutive years but also has maintained dividend payments for eight consecutive years, suggesting a commitment to returning value to shareholders. Additionally, the company's liquid assets surpass its short-term obligations, and it operates with a moderate level of debt, pointing to a solid financial structure. For investors looking for growth, analysts have revised their earnings upwards for the upcoming period, and the company is expected to be profitable this year. Moreover, with a strong return over the last year, including an 87.41% one-year price total return, Toll Brothers appears to have a positive momentum in the market.
For those seeking deeper analysis, InvestingPro provides further insights with additional tips on Toll Brothers, which can be found at Investing.com/pro/TOL. These insights may prove valuable for investors considering the company's stock in light of the recent price target update by RBC Capital Markets.
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