Investors and analysts are having high hopes on the fourth quarter of Toll Brothers (TOL, Financial) that would be disclosed before the bell on Wednesday, December 10. Since the U.S. housing sector has revived considerably, investors are confident that the luxury home builder could surpass all analyst estimates easily this quarter. As the past four quarters have cast optimism with profit, sales, home deliveries and average price per delivery in each of the quarters beating the stated expectations, analysts are patiently waiting for the fourth quarter results to be disclosed and many are even suggesting investors to hold the stock in the long-term. In fact, after a slow start to the year, the stock has clearly outperformed the broad market by a wide margin in the last couple of months. Let’s quickly peek in and find out what are the earnings whispers and to what extent Toll Brothers’ earnings can end in a positive surprise when it’s finally released tomorrow morning.
What is the Street expecting
The average analyst estimate for earnings as compiled by FactSet stands at $0.73 a share, remarkably up from $0.54 a share recorded in the final quarter of the previous year. In fact, this estimate has increased from $0.69 a share at the end of the third quarter of the fiscal year. Revenue is also estimated to rise to $1.34 billion for the quarter from $1.04 billion reported a year ago.
As the macro environment in the U.S. looks favourable, the number of home deliveries is also assumed to grow to 1,807 units from 1,485 units while the average price of a delivered unit is projected to increase to $731,960 from $703,000.
Even the stock has been rallying 11% since the end of September and this is notable when compared with the 4.9% rise in the S&P 500 since September this year.
Now, let’s try to look at the factors that support the uptrend in revenue estimated by the Street analysts for the home builder.
Factors to drive the sales chart
On November 10, Toll Brothers released an impressive number mix for orders, backlog and home building revenues with respect to the preliminary fourth quarter earnings. It reported an improvement of revenue by 29% year-over-year at $1.35 billion, on the back of aggressive pricing and an increase in the number of deals closed. As per the company report, the preliminary average price of homes delivered was $747,000 for the quarter, up 6.3% from a year earlier. Fortunately, as the economy revived in Europe as well, the home builder witnessed an increase in homes delivered in almost every operating region.
As per the preliminary report for the quarter, net orders signed stood at 1,282 units in the fourth quarter, up 10% year-over-year. As the housing demand levelled after showing slight decline in the past few quarters, orders might have rebounded in the fourth quarter.
The management has been highly optimistic on the fiscal year earnings as it expects to have delivered 5,300 to 5,500 homes by the end of the fiscal year. Gross margins are also being expected to improve by 185 to 200 basis points, when compared with the earlier fiscal year.
The management has set the stage on fire and thus investors are also upbeat on the much awaited results that would be finally declared tomorrow before the start of trading.
Final thoughts
As several tailwinds are present to drive the sales forward, both the analysts and company management seem optimistic when it comes to the final results of Toll Brothers for the fourth quarter or that of the fiscal year. Let’s stay tuned to get a better opinion on whether the final quarter really turns out to be a breath-taking one from the financial standpoint for Toll Brothers.
