Toll Brothers shares are still on the buy side as housing data weakens

The latest mortgage data is lukewarm to say the least, but Toll Brothers NYSE: TOL the shares are still to be purchased. Whether the housing market normalizes or not, there is still demand for homes and management is deftly threading the needle between conditions and profits. Highlights from the fourth quarter report include better-than-expected results, a widening margin, and an improved outlook that growth will rebound in 2024. The net result is a double-digit increase in stockholders’ equity over the past twelve months, and a more is expected this year.

Toll Brothers Turns Turn, Business Outlook Accelerates

Toll Brothers turned a corner in the first quarter, with results returning to growth after last year’s tepid performance and an 18% contraction in the fourth quarter. The company reported $1.95 billion, a 9.6% gain over last year. Revenue outperformed the Marketbeat.com consensus by 370 basis points and internal metrics are favorable. The company’s delivery volume increased 6% and was compounded by a higher average realized price.

Margin news is favorable. The company increased gross and operating margins to capitalize on the bottom line. Gross and adjusted margin improved more than 100 basis points, while SG&A expenses decreased 20 basis points as a percentage of revenue. The net result is a 25% increase in net income and a 32% improvement in GAAP earnings, with margin strength expected to be sustained into 2024. GAAP of $2.25 is $0.47 better than expected, suggesting guidance is cautious.

The company raised its forecast for 2024 revenue and earnings. It now expects deliveries to be close to 10,250, up 150 basis points, in line with market expectations. Margin is expected to remain near 28% and produce better-than-expected earnings. The new earnings guidance ranges from $13.25 to $13.75 versus the $12.31 expected by analysts.

The new data on contracts and arrears is in line with the idea of ​​cautious guidance. The net new contract value, a leading indicator, increased 42% year-over-year and increased sequentially, demonstrating market momentum. Market momentum is also seen in the backlog, declining year over year but rising sequentially.

Toll Brothers creates shareholder value

Toll Brothers’ business is generating ample cash flow, which is being used well. The cash balance is declining year over year, but land purchases and capital returns make up for the loss. The key finding is that net worth increased 3.2% sequentially and approximately 12% year-over-year, with further gains expected in 2024. Book value is also on the rise, advancing 2.7% in quarter.

Value is also provided through dividend payments and share repurchases, which have reduced the share count by nearly 5.5% year over year. The dividend yield is not high but reliable and the distribution is growing. The payout ratio is very low, less than 10%, and recent increases are in very low percentages.

Analysts are taking the Toll Brothers stock price higher

Analysts have yet to release reviews, but they are on the way. The first quarter results are in line with analyst trends, suggesting that revisions will be positive. As it stands, the fourteen analysts tracked by Marketbeat have raised the consensus sentiment to Moderate Buy from Hold and the price target 70% over the trailing twelve months. The consensus target lags price action but is supportive; the high end assumes a further 15% to 20% upside is possible.

The price action is shareholder-friendly. The market is up after the release and to a new all-time high. If these levels can hold, the market will likely reach new highs before mid-year, possibly reaching the $120 region.

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