Press Release: Toll Brothers Announces New Luxury Home Community Now Open In Flower Mound, Texas

Toll Brothers (TOL) closed the most recent trading day at $151.66, moving -0.11% from the previous trading session. This move lagged the S&P 500's daily gain of 0.02%. Meanwhile, the Dow experienced a rise of 0.11%, and the technology-dominated Nasdaq saw a decrease of 0.26%.

Shares of the home builder witnessed a loss of 2.16% over the previous month, trailing the performance of the Construction sector with its gain of 2.39% and the S&P 500's gain of 2.99%.

Analysts and investors alike will be keeping a close eye on the performance of Toll Brothers in its upcoming earnings disclosure. The company's earnings report is set to go public on December 9, 2024. It is anticipated that the company will report an EPS of $4.31, marking a 4.87% rise compared to the same quarter of the previous year. Simultaneously, our latest consensus estimate expects the revenue to be $3.16 billion, showing a 4.59% escalation compared to the year-ago quarter.

Investors should also take note of any recent adjustments to analyst estimates for Toll Brothers. These latest adjustments often mirror the shifting dynamics of short-term business patterns. As a result, upbeat changes in estimates indicate analysts' favorable outlook on the company's business health and profitability.

Our research suggests that these changes in estimates have a direct relationship with upcoming stock price performance. To take advantage of this, we've established the Zacks Rank, an exclusive model that considers these estimated changes and delivers an operational rating system.

The Zacks Rank system, which varies between #1 (Strong Buy) and #5 (Strong Sell), carries an impressive track record of exceeding expectations, confirmed by external audits, with stocks at #1 delivering an average annual return of +25% since 1988. Over the last 30 days, the Zacks Consensus EPS estimate has moved 0.15% higher. Toll Brothers presently features a Zacks Rank of #2 (Buy).

Investors should also note Toll Brothers's current valuation metrics, including its Forward P/E ratio of 10.39. This indicates a premium in contrast to its industry's Forward P/E of 9.49.

We can additionally observe that TOL currently boasts a PEG ratio of 1.13. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company's expected earnings growth rate into account. TOL's industry had an average PEG ratio of 0.86 as of yesterday's close.

The Building Products - Home Builders industry is part of the Construction sector. This industry currently has a Zacks Industry Rank of 79, which puts it in the top 32% of all 250+ industries.

The strength of our individual industry groups is measured by the Zacks Industry Rank, which is calculated based on the average Zacks Rank of the individual stocks within these groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

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Beazer Homes (BZH) came out with quarterly earnings of $1.69 per share, beating the Zacks Consensus Estimate of $1.36 per share. This compares to earnings of $1.80 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 24.26%. A quarter ago, it was expected that this homebuilder would post earnings of $0.84 per share when it actually produced earnings of $0.88, delivering a surprise of 4.76%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

Beazer, which belongs to the Zacks Building Products - Home Builders industry, posted revenues of $806.16 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 4.12%. This compares to year-ago revenues of $645.41 million. The company has topped consensus revenue estimates just once over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Beazer shares have lost about 5.1% since the beginning of the year versus the S&P 500's gain of 25.5%.

What's Next for Beazer?

While Beazer has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Beazer: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.43 on $461.9 million in revenues for the coming quarter and $4.72 on $2.72 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Building Products - Home Builders is currently in the top 32% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the same industry, Toll Brothers (TOL), is yet to report results for the quarter ended October 2024.

This home builder is expected to post quarterly earnings of $4.31 per share in its upcoming report, which represents a year-over-year change of +4.9%. The consensus EPS estimate for the quarter has been revised 3% higher over the last 30 days to the current level.

Toll Brothers' revenues are expected to be $3.16 billion, up 4.6% from the year-ago quarter.

Zacks Investment Research

The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?

Let's take a look at what these Wall Street heavyweights have to say about Toll Brothers (TOL) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.

Toll Brothers currently has an average brokerage recommendation (ABR) of 1.89, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 18 brokerage firms. An ABR of 1.89 approximates between Strong Buy and Buy.

Of the 18 recommendations that derive the current ABR, 11 are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 61.1% and 11.1% of all recommendations.

Brokerage Recommendation Trends for TOL

The ABR suggests buying Toll Brothers, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.

This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

Zacks Rank Should Not Be Confused With ABR

Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Should You Invest in TOL?

In terms of earnings estimate revisions for Toll Brothers, the Zacks Consensus Estimate for the current year has increased 0.2% over the past month to $14.53.

Analysts' growing optimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason for the stock to soar in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for Toll Brothers. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, the Buy-equivalent ABR for Toll Brothers may serve as a useful guide for investors.

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