Toll Brothers is updated and rated Weak Sell / Hold at $58.47.
This is a very tough company to rate at the moment. Trailing earnings are at record levels with a 21% ROE and the the stock is trading at just 1.1 times book value and 5.8 times trailing earnings. And this is a very well managed company with a strong balance sheet. BUT the recent earnings were based on contracts to build and sell homes from an average of 9 to 12 months prior to each earnings release. In the two most recent quarters reported, the contracts to sell homes were down a huge 60%. Next Wednesday (February 22) it will report its latest earnings. The earnings may continue to be good but the contracted home sales could be very weak indeed. And earnings are definitely going to fall in 2023 due to lower contracted home sales in recent quarters.
Despite the fact that it is well know that home sales have been weak in November and December (with some improvement after that) the stock is up 18% in 2023 to date. Although the market knows that home sales were weak it’s not entirely clear if that bad news is already priced into the stock.
In my own case I am heavily exposed to this company and I will likely sell about half my shares tomorrow. I think it remains a good company for the long term and it is not expensive. But there is certainly a risk that the share price could fall when it reports earnings next week. I also want to increase my cash position and that is another reason for me to sell down my position in this company.