RBC Capital Markets thinks the recovery in demand is accompanied by strong gains for Toll Brothers. The firm feels that the sentiment around the luxury homebuilder’s shares has been “overwhelmingly negative”. “Given TOL’s high-end, West Coast and build-to-order exposure,” analyst Mike Dahl said, “recent trends suggest the company has experienced similar recovery as its peers.” Dahl upgraded the shares to Outperform from the sector. He also raised his price target to $77 from $55, which would mean an increase of more than 18% from Wednesday’s close. “We expect order growth to ease through 1Q’24, while we see TOL’s Long Lands Bank gain as a margin advantage,” Dahl wrote in a Thursday note. Dahl noted, “TOL has seen demand continue to improve during May, above normal seasonal trends. Deposits and foot traffic remain encouraging despite a return to 7% rates, although we note that the potential for higher rates is not yet fully reflected in the demand trend.” to continue. He also said that the pricing has ticked off. Toll Brothers announced its second-quarter earnings Tuesday after the bell. In addition to topping analysts’ estimates, management said the demand growth since January has continued at the start of its third fiscal quarter. To be sure, Dahl said he is concerned about the company’s recent improvements. However, analyst believe Toll Brothers is a relative outperformer thanks to its flexible margin profile compared to its peer average and an affordable valuation. Shares were up about 1% on Thursday before the bell. The stock is up more than 30% in 2023. —Michael Bloom of CNBC contributed to this report.
