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We expect Toll Brothers, Inc. (TOL - Analyst Report) to beat expectations when it reports fourth quarter and fiscal 2013 results on Dec 10. Last quarter, it posted a double digit surprise of 40.8%.

Why a Likely Positive Surprise?

Our proven model shows that Toll Brothers is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Toll Brothers’ Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.91%. This is a prime indicator of a likely positive earnings surprise for shares.  

Zacks Rank #3 (Hold): Toll Brothers carries a Zacks Rank #3. Note that stocks with Zacks Ranks of #1, #2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Toll Brothers’ Zacks Rank # 3 and +11.91% ESP makes us very confident in looking for an earnings beat on Dec 10.

What is Driving the Better-Than-Expected Earnings?

Despite the recent increase in interest rates, the housing market continues to gain momentum. Toll Brothers has positioned itself well to capitalize on this growing momentum.

In Nov 2013, Toll Brothers released preliminary results of revenues, contracts and backlog for fourth-quarter fiscal 2013.

Toll Brothers expects fourth-quarter net revenue to increase 65% year over year to $1.04 billion, which is ahead of the current Zacks Consensus Estimate of $977 million. Revenues in the quarter are expected to be driven by volume growth and higher prices.

The number of homebuilding deliveries is expected to increase 36% year over year to 1,485 units in the fourth quarter, attributable to a rise in demand.

The number of net orders signed in the fourth quarter of fiscal 2013 is expected to be up 6% year over year. Value of net orders signed during the quarter is expected to be up 23% year over year. Order growth will be driven by strong housing demand and increased pricing.

Last month, Toll Brother entered into an agreement to purchase the homebuilding business of Calif.-based Shapell Industries, Inc. for $1.6 billion; which is expected to largely boost its presence in the upscale Californian housing market. Though demand in the homebuilding market is gaining traction, the supply side is still weak. Following the acquisition, Toll Brothers will gain control over Shapell's entire land portfolio in the California market. It will provide the company an additional 5,200 lots and homes for future sales, thereby strengthening its supply side.

Other Stocks to Consider

Toll Brothers is not the only firm looking up currently. We also see likely earnings beat coming from these 3 homebuilding companies in the upcoming quarter:  

Lennar Corporation (LEN - Analyst Report), Earnings ESP of +1.59% and a Zacks Rank #3 (Hold)

Ryland Group, Inc. (RYL - Snapshot Report), Earnings ESP of +6.09% and a Zacks Rank #3 (Hold)

 MDC Holdings Inc. (MDC - Snapshot Report), Earnings ESP of +33.87% and a Zacks Rank #3 (Hold)

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