Toll Brothers 21Q3 Update

Toll Brothers reported stronger-than anticipated fiscal 21Q3 results that once again exceeded my estimates.  Its diluted earnings per share were $1.86, up 71% from $0.59 in 20Q2.  My estimate was $1.48 and the consensus estimate was $1.53.

The company reported $2.23 billion of home sales revenues from the delivery 2,597 homes.  Revenues were in line with management’s guidance but unit deliveries fell short, due mostly to supply chain and labor constraints.  The shortfall in unit deliveries was offset by a higher-than-expected average selling price.  Home sales gross margin was 22.7%, up 120 bp, and the home SG&A expense ratio was 10.5%, down 140 bp.  Net signed contracts increased by 11% in units and 35% in dollar value, which is quite strong, but slower than the growth recorded earlier in this fiscal year, in large part due to a tougher prior year comparison. 

Management reduced its target for 21Q4 deliveries, but expects improvements on other key metrics, including a higher adjusted home sales gross margin, a lower home SG&A expense ratio and higher income from non-homebuilding operations.  According to my estimates, the revised guidance implies fiscal 2021 EPS of $6.12, up from $5.59 previously.  I have also raised my fiscal 2022 estimate from $7.23 to $7.83, because the high backlog should pave the way for higher deliveries and improved margins and share repurchases should also lift EPS.  My fiscal 2022 projection is below the current average analyst estimate of $8.70.

Based upon this outlook and especially the recent pullback in homebuilder share prices, I have raised my performance rating to “2” (outperform), with a price target of $65.

This is a summary of my latest update report on Toll Brothers, Inc. (TOL). For a copy of the full report, you can reach out to me at the telephone number and email address listed below.

September 13, 2021

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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