Toll Brothers (NYSE:TOL) delivered better-than-expected Q2 results. Thanks to the stronger-than-expected performance and management’s upbeat commentary, shares of this luxury home builder are up over 3% in the pre-market session on May 24. Despite the operating environment improving, an upward revision in guidance, and operating efficiency, analysts continue to be cautiously optimistic due to economic and demand uncertainty.
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The company delivered 2,492 homes in Q2 at an average price of about $1 million, resulting in home sales revenues of approximately $2.5 billion, much higher than the analysts’ estimate of $2.06 billion.
The benefits from higher sales and cost reduction initiatives cushioned its margins and bottom line. The company exceeded its adjusted gross margin guidance by 130 basis points. Moreover, its earnings of $2.85 per share jumped 54% year-over-year and handily surpassed the Street’s consensus estimate of $1.91.
The management of Toll Brothers increased the full-year guidance in light of stabilizing mortgage rates and an improving demand environment. Management expects to deliver 8,900-9,500 homes in 2023, compared to its earlier guidance of 8K to 9K units. Furthermore, the average delivery price per home is also expected to increase, thus supporting overall revenues.
Toll Brothers’ margins are anticipated to increase and support its bottom line as a result of the increased units, higher average price, and operating efficiency.
Following the Q2 announcement, Goldman Sachs analyst Susan Maklari highlighted that “demand has held above seasonal norms through the spring,” which drove its financials and supports upbeat guidance. However, Maklari has a Sell recommendation on TOL stock due to the uncertainty around demand and the operating environment.
Is TOL Stock a Buy, Sell, or Hold?
TOL stock sports a Moderate Buy consensus rating. It has received six Buy, three Hold, and one Sell recommendations. Meanwhile, analysts’ average price target of $68.22 implies 7.01% upside potential from current levels.
