Shares of luxury homebuilder Toll Brothers Inc (NYSE: TOL) are advancing Wednesday following an upbeat commentary on the company's prospects by an analyst at Wedbush.
The Toll Brothers Analyst
The Toll Brothers Thesis
Order growth at Toll Brothers has surpassed expectations in the last two quarters, McCanless said in a Wednesday note. Given the easy prior year comps and sequential community growth through fiscal year 2020 ending October, the analyst sees double-digit percentage order growth as achievable for the remainder of the year.
The two price increases the homebuilder has already announced in 2020 and the likelihood of more increases should help profitability ramp from fiscal year 2020 to 2021, McCanless said.
The analyst expects 36% year-over-year EPS growth for 2021, as homes sold now will close starting in fiscal year 2021 and have 180 basis points higher gross margin than homes closed in 2020.
Share repurchase, according to the analyst, is another catalyst. The company signaled at its first quarter earnings call it would be an active buyer of its stock at current levels, McCanless noted.
Wedbush said valuation of shares are attractive, given they are trading at a discount to the homebuilder group, both on P/E basis and on the basis of Price/tangible book value.
TOLL Price Action
Toll Brothers shares were up 3.46% to $40.312.