PulteGroup Is Oppenheimer's 'Top Pick' In The Builder Space; Toll Brothers' Business Model Impresses Analyst - Toll Brothers (NYSE:TOL), PulteGroup (NYSE:PHM)

Oppenheimer analyst Tyler Batory initiated coverage on PulteGroup Inc PHM with an Outperform rating and $64 price target. PHM is the analyst's 'Top Pick' in the builder space.
The analyst likes how PHM has a balanced buyer mix, with 36% of closings to first-time buyers in 3Q22, 38% to move-up, and 26% to active adult.
This composition, the analyst thinks, allows the company to capture strength in different buyer segments and offer attractive returns and risk mitigation. The analyst sees less downside to the gross margin at PHM.
The analyst said that PHM has a longer overall land position than peers and ramped up its lot count substantially in 2020/21.
Much of this growth, however, was in the option portion, which the analyst thinks has less risk than owned land.
The analyst thinks PHM has one of the strongest balance sheets in the sector and the best leverage profile in company history.
PHM has been active repurchasing its stock, which should continue.
The analyst also initiated coverage on Toll Brothers Inc TOL with an Outperform rating and a $71 price target.
TOL ended FY22 with a substantial backlog of homes, which the analyst sees as a competitive advantage.
The analyst specified that the company also sells to affluent buyers, which should offer some price protection in the current environment.
The analyst sees less downside risk to gross margin at TOL, given its to-be-built business model and backlog.
TOL has a longer land position than peers and ramped up its lot count substantially in FY21.
The analyst thinks the company has the best balance sheet and leverage profile in its history.
TOL has been active repurchasing its stock, which should continue.
Price Action: TOL shares are trading lower by 1.94% at $55.21, and PHM is down 0.98% at $50.47 on the last check Thursday.

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