Luxury homebuilder Toll Brothers reported Tuesday earnings hitting an all-time high this year as interest rate hikes and high mortgage rates stifled the supply of existing homes, boosting the market share for new homes. TOL shares advanced Wednesday.
Toll Brothers reported Tuesday that fiscal fourth-quarter EPS fell 26% to $4.11, the company's first earnings drop in more than two years, with revenue from home sales totaling $2.95 billion, down 18% vs last year. Meanwhile, full fiscal-year earnings jumped 13% to $12.36 per share with home sales revenue coming in at $9.87 billion, up 2% compared to 2022.
Analysts expected profit to slip 34% to $3.72 per share with sales declining 25% to $2.78 billion. For the full year, Wall Street forecast EPS of$11.97 and revenue coming in at $9.74 billion.
Toll Brothers also reported it ended the fourth quarter with a backlog value of $6.95 billion, down 22%. The average home price in the backlog at the end of 2023 is $1.056 million, according to the company
Chief Executive Doug Yearley said in the earnings release Tuesday that the company saw "solid demand" through the end of Q4 and that Toll Brothers is working to keep unit prices lower next year.
"With resale inventories at historic lows, buyers continue to be drawn to new homes, and we expect lower rates with lower inflation to add to this already solid demand," Yearley said.
"Our strategy of broadening our home offerings to include lower price points, coupled with our focus on increasing our supply of spec homes and growing our community count, has positioned us well for this market," he added.
Toll Brothers stock gained around 3% to 89.90 Wednesday during market action. TOL advanced a fraction to 87.21 on Tuesday. Meanwhile, TOL competitor and Warren Buffett-backed housing stock D.R. Horton is flashing a buy signal. D.R. Horton is also on the IBD Leaderboard.
Toll Brothers Outlook
The luxury homebuilder projects deliveries between 1,800-1,900 units in Q1 2024 with an average delivered price per home of $985,000 - $1.005 million. Meanwhile, Toll Brothers' 2024 outlook includes deliveries totaling 9,850-10,350 units with an average price per home of $940,000 - $960,000.
On Monday, Bank Of America raised its TOL price target to 98, up from 95, and maintained a buy rating, expecting an earnings beat.
Warren Buffett's Housing Market Bet
Last month, the Warren Buffett stock reported better-than-expected fiscal fourth-quarter earnings and revenue. D.R. Horton, the largest publicly traded homebuilder measured by market capitalization, announced fiscal Q4 EPS fell 5% to $4.45 while sales increased 9% to $10.5 billion.
"Despite continued higher mortgage rates and inflationary pressures, our net sales orders increased 39% from the prior year quarter, as the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable," Chairman Donald R. Horton told investors at the time.
Warren Buffett's Berkshire Hathaway holds a 1.76% stake in D.R. Horton. Earlier this year Berkshire bet on the supply-constrained U.S. housing market with Warren Buffett opening new positions worth a total of more than $800 million in S&P 500 stocks Lennar, D.R. Horton and NVR.
Toll Brothers Stock: The Housing Market
The U.S. is in a long-term housing shortage. For decades, the construction of new homes has failed to keep pace with the growing population. Rising material costs, supply-chain issues and labor shortages since the Covid pandemic have exacerbated the issue.
The shortage is currently running at a deficit of about 5.5 million homes, according to the National Association of Realtors (NAR). The gap is so large it would take more than a decade to close, NAR says, even if new-home construction accelerates.
The National Association of Realtors reported on Nov. 21 that existing-home sales fell 4.1% in October, slumping nearly 15% vs 2022, to a seasonally adjusted annual rate of 3.79 million. The median existing-home sales price rose 3.4% from one year ago to $391,800, the fourth consecutive month of year-over-year price increases.
Meanwhile, the inventory of unsold existing homes grew 1.8% from the previous month to 1.15 million at the end of October, according to NAR. That's the equivalent of about 3.6 months' supply at the current sales pace.
"While circumstances for buyers remain tight, home sellers have done well as prices continue to rise year over year, including a new all-time high for the month of October," NAR Chief Economist Lawrence Yun said at the time.
Yun added that as mortgage rates have fallen in recent weeks there has been more buying interest.
"Though limited now, expect housing inventory to improve after this winter and heading into the spring. More inventory will result in more home sales," he said.
The Commerce Department announced on Nov. 17 that housing starts in October increased around 2% sequentially to a seasonally adjusted annual rate of 1.37 million. However, housing starts fell 4.2% vs. last year. Building permits — a rough gauge of future activity — in October were at a seasonally adjusted annual rate 1.487 million, 1% above September rates but 4.4% below October 2022 totals.
Toll Brothers Stock And DHI Performance
U.S. homebuilder stocks rallied aggressively through the first half of the year, as rising interest rates slowed sales of existing houses. That slowdown channeled demand into the market for newly built homes.
The Building-Residential/Commercial industry group ranks No. 62 out of 197 groups tracked by IBD. Homebuilder stocks collectively have advanced more than 30% so far in 2023.
Toll Brothers stock ranks second in the housing market industry group. TOL has a muscular 96 Composite Rating out of 99. The stock also has a 94 Relative Strength Rating. The EPS Rating is 98.
TOL shares have gained 76% in 2023. Toll Brothers stock hit a high of 87.12 on Nov. 15. Meanwhile, DHI shares edged up 2.7% Wednesday, trading above a 134.27 buy point from a cup-with-handle base.
The Warren Buffett stock has surged more than 30% since hitting a recent low in October.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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