Toll Brothers (TOL, Financial) recently posted strong results for the third quarter. The U.S. luxury home builder posted good improvement in both the top and bottom lines. The company is pleased with the strong momentum it is seeing in its key metrics and is expecting margin expansion in the coming days. The main reason behind this robust growth in the financial performance is driven by increasing demand for homes and rising prices. Let us have a look at the overall housing industry and see how Toll Brothers is looking to benefit from it.
Quarterly performance and beyond
Toll Brothers’ quarterly revenue rose by 53% to $1.06 billion as compared to $686 million which it posted in the same quarter last year. While its net income came in at $97.7 million as compared to $46.6 million which it posted in the same quarter last year. On the earnings front it posted robust improvement. Its earnings grew by 110%. Toll Brothers beat analysts’ estimates for all the metrics in the third quarter.
Toll Brothers’ performance in the third quarter was commendable. The robust improvement in its top and bottom line indicates that it has got much steam. However, the company might face a hurt due to the soft housing industry all over the U.S. This is affecting almost everywhere which is clear from the disappointing results from the other companies in the league such as D.R Horton (DHI, Financial), PulteGroup (PHA, Financial), etc. However, the trend it is seeing in its margin expansion is expected to benefit the company in this situation as well. Besides this, Toll Brothers is also working with different strategies and initiatives focusing towards profitability.
Positive trends
It is seeing some positive trends that can be trusted to take it towards profitability. It is seeing positive growth in the traffic per community. The company is also looking at it as a long-term prospect for it, continuing in 2015 as well. To capture this opportunity, Toll Brothers has plans to open number of new city living of New City living Condo communities including 400 Park Avenue South, Park Avenue and the Sutton, etc.
Toll Brothers is also counting on underlying pent-up demands. It is seeing strong pent-up demands towards the next and the upcoming fiscal year. The company is now targeting most potential areas which has great home demands such as Coastal California and Texas. This focus will lead the company to position itself as a leader in the housing industry among the league. This will also help the company to improve its growth momentum, contributing better to its top line in future.
Toll Brothers is also working with five joint ventures. and it is now focusing on effectively using these joint ventures to ramp up its apartment living divisions. Moreover, it is also having a strong pipeline of 2,250 units to be approved giving Toll Brothers good opportunities for better results in the future. The focus of the company at the urban and sub-urban areas is expected to upscale its sales. Besides this, Toll Brothers is further having expansion plans for its City Living brand in the pipeline. It also has a massive portfolio of land, creating string opportunities for the home maker to grow in future. This will also be a positive driver of healthy cash flows, enabling it to gain much market share by enhancing the value of its shareholders.
Conclusion
Looking at the fundamentals, with trailing P/E of 20.95 the stock looks reasonable and the forward P/E of 16.08 shows good earnings growth in future. The stock can also be a strong long term holding as its earnings are growing at CAGR of 36.41% which is more than the industry average of 18.59%. This clearly indicates that there is much positive momentum in the stock and with the growth of housing sector it will soar even higher. As of now Toll Brothers is a good pick.
