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Toll Brothers (TOL) to Report Q4 Earnings: A Beat in Store?

Zacks

Toll Brothers Inc. TOL is set to report fourth-quarter fiscal 2017 results on Dec 5, before the market opens. The company delivered a positive earnings surprise in the last reported quarter and has surpassed the Zacks Consensus Estimate by an average of 8.8% in the trailing four quarters.

Lack of competition in the luxury new home market proves beneficial for Toll Brothers. The company mostly caters to luxury move up buyers, who already possess a residence and are looking to shift to larger homes. These homebuyers are less sensitive to price changes. Thus, Toll Brothers enjoys an edge over other homebuilding companies, resulting in strong earnings, revenues, contracts and backlog growth.

Notably, the third quarter of fiscal 2017 marked the 12th consecutive quarter of year-over-year growth in contract units and value, with 20% or higher growth in each of the last four quarters. The trend is expected to continue in the to-be-reported quarter. The Zacks Consensus Estimate for fiscal fourth-quarter contract value is pegged at $1.7 billion, reflecting an increase of 13.3% year over year.

Also, home deliveries are expected to peak in the fourth quarter and continue into 2018. The company expects home deliveries between 2,275 and 2,575 units in the quarter, higher than 2,224 units in the prior-year quarter.

The company expects average price of home deliveries in the $840,000 to $860,000 range, reflecting an increase of 6.3-8.9% year over year. Adjusted gross margin in the quarter is expected to improve 35-50 bps year over year in the quarter, while SG&A expenses are estimated at 8% of revenues compared with 8.7% of revenues in the prior year quarter.

Overall, the Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $1.19, reflecting an increase of 77.6% year over year. The consensus estimate for revenues is pegged at $2.08 billion, reflecting an increase of 12.2% year over year.

Also, the outlook for the U.S. homebuilding industry is quite compelling, given the affordable interest rates and tight inventory indicating pent-up demand. Moreover, the latest positive housing data reassures the housing industry’s strength, courtesy of solid economic growth amid supply shortages and recovery from hurricanes in Florida and Texas. Consistent job growth along with seemingly high homebuilders’ confidence is driving the momentum.

Meanwhile, rising building materials and labor costs raise concern.

Our quantitative model shows that Toll Brothers has the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to post an earnings beat.

Zacks ESP: The Earnings ESP for Toll Brothers is +4.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Toll Brothers carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Toll Brothers Inc. Price and EPS Surprise

Toll Brothers Inc. Price and EPS Surprise | Toll Brothers Inc. Quote


Other Stocks Worth a Look

Here are a few other construction stocks worth considering as they have the right combination of elements to beat earnings.

Owens Corning Inc OC has an Earnings ESP of +2.06% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PulteGroup, Inc. PHM has an Earnings ESP of +5.81% and a Zacks Rank #3.

Aegion Corp AEGN has an Earnings ESP of +7.14% and a Zacks Rank #3.

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