Barclays Cuts Toll Brothers Price Target

Barclays lowered its price target on Toll Brothers Inc TOL Friday from $37 to $34 and maintained an Equal-Weight rating. The change follows the company’s fiscal Q4 miss.

Analyst Stephen Kim summarized that “Toll Brothers reported 4Q14 adjusted diluted EPS of $0.75 vs. our $0.60 (unrevised) estimate, including a $32mn warranty and litigation charge.

“Overall, it was a quarter marked by stronger-than-expected volumes, driven specifically by City Living closings, which we note are lumpy in nature, and an in-line gross margin of 27.9 percent excluding $43mn in charges related to impairments and litigation reserves.”

Kim observed that the company “lacks pricing power across the portfolio to keep up with the rising costs. However, ASP in traditional homebuilding should rise given the higher y/y pricing guidance and lower City Living deliveries.”

“Management highlighted that contracts in the first six weeks were up 16 percent y/y while deposits were up 15 percent. If this demand pace continues through the year, the high end of the delivery guidance range of 5,000-6,000 appears achievable,” according to the analyst note.

Kim concluded, “Following 4Q14, we are updating our EPS estimates to $1.90 (from $2.18) for FY15 and to $2.75 (from $2.68) for FY16, as we adjust our outlook for City Living, margins and volume.”

Toll Brothers recently traded at $31.92, down 0.65 percent.