Toll Brothers reported stronger-than anticipated fiscal 21Q4 results that once again exceeded my and the consensus estimates. Its diluted earnings per share were $3.02, up 95% from $1.55 in 20Q4. My estimate was $2.51 and the consensus estimate was $2.50.
The company reported $2.95 billion of home sales revenues from the delivery of 3,341 units. Revenues exceeded management’s guidance but unit deliveries fell short, due mostly to supply chain constraints. The shortfall in unit deliveries was offset by a higher average selling price. Home sales gross margin was 23.5%, up 340 bp, and the home SG&A expense ratio was 8.8%, down 110 bp. Net signed contracts decreased by 13.2% in units, but increased by 9.5% in dollar value. Average contract prices surged by 26.9%, due in part to a mix shift. Despite the unit decline, management said that the pace of sales been strong and steady in recent months.
Management’s guidance anticipates fiscal 2022 deliveries of 11,750 units at an average price of $885,000 (both at the midpoint of the range) along with a 300 bp improvement in adjusted gross margin and a 50 bp reduction in the SG&A expense ratio. Combined, this translates into projected diluted earnings per share of $9.84, according to my projections, up 48.4% from fiscal 2021. This guidance does not anticipate improvement in labor and materials costs.
Despite my higher fiscal 2022 earnings projection, I am reducing my performance rating to neutral, based upon the recent surge in Toll’s share price. The stock is now overbought, technically speaking. I am resetting my price target to $72, equal to the current price, but above my previous target of $65. After a correction (or consolidation) in price, if Toll achieves the soft landing that I anticipate and delivers on its fiscal 2022 guidance, the stock should have further upside potential.
This is a summary of my recent update report on Toll Brothers, Inc. (TOL). To receive the report, please contact me.
December 10, 2021
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.