Toll Brothers hiked earnings guidance for fiscal 2024 late Tuesday after easily beating third-quarter views. On Wednesday, Toll Brothers stock leapt higher in a buy zone.
Toll Brothers Earnings
Late Tuesday, Toll Brothers reported Q2 EPS of $3.60, a 3.5% decline, far less than feared. Revenue grew 2% to $2.72 billion, an earnings release showed.
Analysts were expecting Toll Brothers earnings to slide 11% to $3.31 per share, according to FactSet. Tough year-ago comparisons were part of the reason for the forecast slip. Analysts were projecting Q2 sales to rise 0.8% to $2.708 billion.
Gross margin from home sales exceeded the company's guidance at 28.8%, though down slightly from the year-ago Q2. The company cited "favorable mix and greater efficiencies" in its operations.
Toll Brothers said Tuesday that it now expects full-year earnings of $14.50-$14.75 per share, up from its prior view for $14. Analysts were expecting $14.17, FactSet shows.
Further, Toll Brothers said that it is increasing the expected total share repurchase for fiscal 2024 from $500 million to $600 million. Toll's fiscal year ends in October.
In May, management affirmed consumer demand for luxury new homes, "driven by a resilient economy, favorable demographics and a lack of supply." The company has benefited as more millennials enter the home buying market.
Toll Brothers Stock
Shares of the luxury homebuilder jumped 5.6% in big volume to 141 in Wednesday's stock market action.
Toll Brothers stock cleared a 135.37 buy point from a cup-shaped base in mid-July, according to MarketSurge pattern recognition. It then fell more than 7% to 8% below the entry, triggering the automatic sell rule.
Shares have since rebounded from support at the 50-day moving average, putting them in a buy zone.
The homebuilder stock had spent much of the year consolidating. It more than doubled in 2023.
ITB ETF, Taylor Morrison Stock
The iShares U.S. Home Construction ETF chart shows a similar pullback and recovery. Top holdings of the homebuilder exchange traded fund include D.R. Horton, Lennar and NVR.
Among other homebuilder stocks, Taylor Morrison Home popped 3.1% to 63.48 on Monday and extended gains by 2.9% on Wednesday. Shares dipped on Tuesday. On Monday, a BTIG analyst upgraded Taylor Morrison stock to buy from neutral.
Homebuilder Stocks and Interest Rates
Homebuilder stocks could benefit from two major changes affecting the real estate industry. One took effect over the weekend: lower broker fees for home sellers. The other is expectations for a Fed rate cut, which could bring relief to Americans from steep mortgage rates that have dampened home sales.
For builders of new homes, higher rates aren't necessarily a bad thing. Toll Brothers says they actually boosted demand by curbing sales of existing homes. However, the steep discounts and promotions required to maintain those sales led to a downshift in company earnings over the past three quarters.
The iShares U.S. Home Construction ETF surged 19% in July after going pretty much nowhere in the first half of the year. The surge owed to falling treasury yields, which have fallen sharply since April and eased some pressure on mortgage rates. Hopes for a looming Fed rate cut also play a critical role.
Investors in homebuilder stocks will watch rate-cut signals during this week's Federal Reserve symposium at Jackson Hole, which runs Thursday through Saturday.
Fed observers generally expect Chair Jerome Powell, set to speak on Friday morning at Jackson Hole, to signal a 25-basis-point cut to the federal funds rate in September. The markets, however, figure about a 23% probability of a half-point cut.
Shake-Up For Real Estate Fees
Meanwhile, homebuilders saw a shake-up in real estate broker fees take effect over the weekend.
A settlement in March between a group of Missouri homeowners and the National Association of Realtors, along with two brokerage firms, found in the plaintiffs favor. The decision assigned liabilities of $1.8 billion to the defendants, and required stark changes in the way agents fees are handled.
Until now, home sellers typically had to pay commissions of 5% to 6% to their agents, which was typically split with the buyer's agent. The new rules provide much greater clarity, make it easier for sellers to negotiate fees lower and make it possible for buyers to avoid agents completely.
The new rules could technically trim some of the cost off buying a home, which could mean an increase in home buying. That, in turn, could possibly translate to a boost for homebuilder stocks.
Year to date, Toll Brothers stock has soared 37.2%, including a July boost from falling yields.
