Toll Brothers, Inc. ( TOL Quick Quote TOL - Free Report) has been riding high on its strategy of broadening product lines, price points and geographies. Prudent inorganic drive and the lack of competition in the luxury new home market also act as major tailwinds for this Horsham, PA-based homebuilder. Shares of this Zacks Rank #3 (Hold) company have outperformed the industry in the past three months. Earnings estimates for 2022 have moved up 3.2% in the past 30 days. The 2022 earnings per share of $10.19 indicate 53.7% year-over-year growth. The company currently has a VGM Score of A, supported by a Value Score and a Momentum Score of A. These positive trends signify analysts’ bullish sentiments and indicates robust fundamentals and the expectation of further outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Image Source: Zacks Investment Research
Building Products - Home Builders and related industries have been grappling with supply woes and labor constraints. Also, the rising cost of materials and transportation adds to the woes. To mitigate these inflationary pressures, Toll Brothers and industry players like Lennar Corporation ( LEN Quick Quote LEN - Free Report) , PulteGroup, Inc. ( PHM Quick Quote PHM - Free Report) and D.R. Horton, Inc. ( DHI Quick Quote DHI - Free Report) have undertaken various price actions and cost-saving moves. These companies are currently observing price-cost neutrality, which will reduce cost pressure on the bottom line. Factors Mitigating Industry Woes Affordable Homes in High-Cost Environment: The company continues to look for opportunities to expand its luxury brand to new product lines and price points to maintain leadership in the luxury segment. At the same time, the company has been strategically adding more affordable luxury communities in view of the current demographic trends and the expanding footprint and customer base. These communities are expected to be more capital efficient. Expanding Reach, Exploring New Markets: Toll Brothers is using its strong liquidity position to secure the most sought-after urban locations in the country like the New York City Market, Northern New Jersey, Washington DC and Philadelphia. The company’s solid land position places it well to meet the growing demand in these regions, thus giving it a competitive edge over its peers facing land-availability constraints. Management is heading toward its target of 375 community count growth for fiscal 2022, indicating 10% growth from the fiscal 2021 level. This will reflect accelerating land acquisition and development to meet the resurgence in homebuyer demand. TOL’s extensive geographic footprint and deep land position will allow it to grow its community count in fiscal 2022 and beyond, attributable to the faster-than-expected sales of the existing communities. Solid Liquidity & Impressive Investor-Friendly Moves: At the fiscal second quarter-end, Toll Brothers had $2.3 billion of total liquidity, comprising $535 million in cash and cash equivalents and $1.8 billion availability under the revolver capacity. The revolving bank credit facility will not mature until November 2026. During the fiscal first quarter, the company repaid the remaining $410 million of 5.875% notes due in February 2022. It has no significant debt maturities until April 2023. Backed by a strong liquidity position, TOL has been consistently driving shareholder value by returning cash to shareholders through regular share repurchases and dividend payments. During the fiscal second quarter, Toll Brothers repurchased $106.5 million shares of its common stock. Since the beginning of fiscal 2022, it has repurchased about $308 million or 4.6% of its 2021-end share count. Also, it has paid $44 million in dividends. Discussion of Above-Mentioned Stocks Lennar: This well-known homebuilder benefits from effective cost control and focuses on making its homebuilding platform more efficient, leading to higher operating leverage. Lennar’s earnings for fiscal 2022 are expected to rise 14.7% year over year to $16.36 per share. PulteGroup: This Atlanta-based homebuilder has benefited from a prudent land investment strategy, focusing on entry-level buyers and returning more free cash flow to shareholders. PulteGroup’s annual land acquisition strategies have resulted in improved volumes, revenues and profitability for quite some time now. The company has been reaping benefits from the successful execution of strategic initiatives to boost profitability, focusing on entry-level homes. The Zacks Consensus Estimate for PulteGroup’s 2022 earnings is expected to increase 46.9%. D.R. Horton: This leading homebuilder currently sports a Zacks Rank #1. This Texas-based prime homebuilder continues to gain from industry-leading market share, a solid acquisition strategy, a well-stocked land supply, lots, homes and affordable product offerings across multiple brands. D.R. Horton’s earnings are expected to rise 52.7% year over year in fiscal 2022.