Chase the Rebound in Toll Brothers (TOL) Stock?

Core Viewpoint - Toll Brothers has experienced a significant stock rebound, driven by a strong performance in the luxury housing market and a less interest-sensitive affluent customer base [1][2]. Financial Performance - Toll Brothers reported record Q3 sales of $2.94 billion, surpassing estimates of $2.85 billion, and reflecting an 8% increase from $2.72 billion a year ago [4]. - Q3 earnings per share (EPS) were $3.73, up from $3.60 in the same quarter last year, exceeding expectations of $3.59 by nearly 4% [4]. - The company delivered 2,959 homes at an average price of $974,000, achieving an adjusted gross margin of 27.5% [6]. Market Position and Strategy - Despite a softer overall housing market, Toll Brothers attributes its strong results to a balanced operating model and a diversified luxury business strategy that prioritizes price and margin over sales pace [5]. - The company signed 2,388 net contracts worth $2.4 billion during Q3, resulting in a total backlog of 5,492 homes valued at $6.37 billion, with an average sales price of $1.16 million [7]. Guidance and Future Outlook - Toll Brothers expects to deliver approximately 11,200 homes for the full year, at the lower end of its previous guidance range [7]. - The company maintained its full-year adjusted gross margin forecast at 27.25% and expects other income from unconsolidated entities and land sales gross profit of $110 million [8]. Valuation Metrics - TOL shares trade at 9.4X forward earnings, which is below the Zacks Building Products-Home Builders Industry average of 12.4X, indicating a potential investment opportunity [9]. - The stock is also trading well under the preferred level of less than 2X sales [9]. Dividend Information - Toll Brothers has increased its dividend for five consecutive years, with an annualized growth rate of 16.31% [11]. - The current annual yield is 0.76%, which is below the S&P 500 average of 1.16%, but the 7% payout ratio suggests room for future increases [11]. Overall Assessment - Toll Brothers appears well-positioned to navigate the housing market slowdown due to its luxury clientele, although it faces challenges in a tougher operating environment [12].