Wolfe upgrades Toll Brothers on discounted valuation

Wolfe Research upgraded Toll Brothers , Inc. (NYSE:) to an Outperform rating (From Peer Perform) and set a 12-month price target of $118.00 on the building company.

“In addition to valuation, we like TOL’s strong Cash Flow driving share repo upside, favorable land bank and leverage to the Age Targeted/MU buyer market that should begin thawing.” Wrote analysts at Wolfe Research in a note.

Looking ahead, the firm has a positive outlook on TOL’s land bank (Builder Land Banks), considered among the healthiest in the industry. This strength is expected to lead to better profit margins compared to competitors in the medium term.

TOL’s robust inventory of active lots also indicates potential for growth. Their investment in land during ’22/’23 supports a projected 10% increase in community count for ’24, along with a healthy pipeline of active lots.

The existing land holdings acquired before 2021 suggest that TOL’s gross margin spread compared to other companies will remain high in ’24. Moreover, it seems that the reduction in pricing for high-end properties hasn’t matched that of entry-level ones.

Additionally, the company’s revised underwriting standards are anticipated to maintain normalized levels, likely surpassing the pre-COVID average of around 21%.

Shares of TOL are up 1.39% in pre-market trading on Monday morning.