Analyst Roundup: Should Toll Brothers Investors Build A Position After Q3 Report?

Toll Brothers Inc TOL reported a top-and-bottom-line beat in its fiscal third-quarter on Tuesday.

The luxury homebuilder followed up with encouraging commentary on the fiscal fourth quarter. Here's how some of the Street's top analysts reacted to the print.

The Analysts

Wells Fargo analyst Truman Patterson maintains an Outperform rating on Toll Brothers' stock with an unchanged $45 price target.

Bank of America Merrill Lynch analyst John Lovallo II maintained at Neutral, unchanged $39 price target.

Raymond James analyst Buck Horne maintained a Market Perform rating. 

Wells Fargo: Solid Report, Soft Orders

Toll Brothers' third-quarter report included multiple "solid" metrics, including gross margins that came in 40 basis points better than expected, Patterson said in a Tuesday note. 

The gross margin — along with profit from land sale, JV earnings and interest and other income — helped drive an EPS beat of $1.03 versus expectations of 91 cents, the analyst said. 

On the other hand, some items came in short of expectations, most notably a decline in orders in four out of six regions, he said. Order dollars fell 8% versus expectations of 2% growth, with particular weakness in California, as demand at less affordable price points has not yet fully recovered after a slowdown in the fall, according to Wells Fargo. 

BofA: Early Q4 Strength

Toll Brothers' order weakness in the fiscal third quarter could prove to be short-lived, as the homebuilder highlighted a solid start to fiscal fourth-quarter orders, Lovallo said in a Tuesday note.

The company lifted the low end of its total fiscal 2019 deliveries from 7,700-8,100 to a new range of 7,800-8,100. The average selling price was also lifted at the low end from $855,000-$880,000 to a new range of $860,000-$880,000, according to BofA. 

Raymond James: The Math Behind Buybacks

Toll Brothers decided to notably accelerate its stock buyback program to take advantage of the stock trading near 1.1 times GAAP book value for most of the quarter, Horne said in a Tuesday note.

The company bought back close to 4 million shares of its stock at around $35 per share, the analyst said. This buyback activity lowered the total share count by close to 3% and added 1 cent per share to EPS, he said. 

Price Action

Shares of Toll Brothers were trading lower by 4.2% early Wednesday afternoon at $35.35.

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