Barron's Says Toll Brothers' Stock Can Gain 40%, Investors Nod In Approval

Barron's argued in a report over the weekend that shares of Toll Brothers Inc TOL have an upside of 40 percent. Barron's Andrew Bary pointed out that Toll Brothers entry into the luxury condominium market has been "successful" as the high-margin business accounted for 20 percent of the company's operating income last year. Despite the new found success, investors aren't confident in the stock which peaked at $42 in August 2015. In fact, shares have lost more than 12 percent since the start of 2016 and more than 25 percent over the past year. Bary's report may have introduced some life back into Toll Brothers' stock which gained more than 1.50 percent on Monday. The author argued that the company "isn't seeing much weakness in its buildings." Meanwhile, Toll Brothers' exposure to the New York market "looks modest." "New York is not as strong as it was 18 months or two years ago, but it's still a very good market," CEO Douglas Yearley told Barron's. "We've had to pull back a little on price, but the sky is not falling." Bary also cited Bennet Lindenbaum, a co-founder of Basswood Partners who said that the company holds a "sustainable competitive advantage" in New York due to its lower cost of capital. The analyst added that shares should be valued at $40 or more given the high visibility on the company's earnings. "While the New York condo business currently commands the Street's attention, investors ought to focus on the bigger picture," Bary concluded. "Toll is a differentiated builder with a terrific brand name, high margins, and a disciplined management team—and its shares are now on sale at a discounted price."