Toll Brother's Solid Q3 Results Puts Homebuilders On Strong Foundation

Shares of homebuilders are on a roll after luxury homebuilder Toll Brothers Inc TOL reported forecast-beating third-quarter earnings, revenues and home deliveries.

At the time of writing:

• Toll Brothers was rallying 11.92 percent to $38.86.
• Beazer Homes USA, Inc. BZH was seen trading up 4.75 percent to $13.46.
• PulteGroup, Inc. PHM shares were surging 4.05 percent to $29.27.
• LGI Homes Inc LGIH was up 3.38 percent to $58.15.
• Lennar Corporation LEN up 3.91 percent to $53.13.
• Meritage Homes Corp MTH up 3.69 percent to $43.60.
• KB Home KBH up 4.49 percent to $25.11.

What Happened

Toll Brothers reported fiscal Q3 earnings per share of $1.26 compared to 87 cents per share in the year-ago period. Revenue climbed 27 percent year-over-year to $1.91 billion.

Analysts, on average, estimated EPS of $1.03 and revenue of $1.81 billion.

Home deliveries rose 18 percent to 2,246 units, ahead of the previously guided 2,100-2,200 units. Net signed contracts were valued at $2.03 billion, up 12 percent. The backlog at the end of Q3 climbed 22 percent to $6.48 billion.

Looking ahead, the company guided to 2018 deliveries of 8,100-8,400 units, with an average price range of $835,000-$860,000.

For the fourth quarter, the company guided to deliveries of 2,550-2,850, with an average price in the range of $840,000 to $870,000.

Why It's Important

The results should come as a relief at a time when worries abound over a possible slowdown in the housing market amid a rise in mortgage rates, as the Fed persists with a tightening of monetary policy.

Real estate broker Redfin Corp RDFN recently lowered its Q3 forecast, blaming slower bookings growth.

What's Next

Investors are likely to focus on the week's housing market reports to gain confidence in the strength of the sector. 

• The National Association of Realtors is scheduled to release existing home sales data for July at 10 a.m. Eastern time Wednesday, with economists forecasting a modest month-over-month dip to a seasonally adjusted annual rate of 5.420 million units.
• The Commerce Department is due to release new home sales data for July at 10 a.m. Eastern time Thursday. The consensus estimate calls for new home sales to come in at a seasonally adjusted annual rate of 649,000, up from 631,000 in June.
• Also on Thursday, the Federal Housing Finance Agency will release its house price index for June. Economists, on average, expect a 0.4 percent month-over-month increase in home prices.

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