RBC Capital Markets thinks Toll Brothers is in for strong earnings as demand improves. The company thinks sentiment around the luxury homebuilder’s stock has been “too negative.” Analyst Mike Dahl said that “given TOL’s high-end, West Coast and custom manufacturing exposures,” recent trends show the company has seen improvements similar to its peers. Dahl upgraded the stock to outperform the sector. He also raised his price target to $77 from $55, representing a more than 18% increase from Wednesday’s close. “We expect excessive order growth during 1Q24 given the ease of comparison, while we also view TOL Bank as providing a margin advantage,” Dahl wrote in a note on Thursday. “TOL saw continued improvement in demand through May, above normal seasonal trends. Deposits and foot traffic remain encouraging despite the return of 7% rates, although we note that higher rates are likely not yet fully reflected in demand trends,” Dahl continued. He also noted that prices have increased. Toll Brothers reported its fiscal second quarter earnings after the bell on Tuesday. In addition to beating analysts’ estimates, management said demand growth from January continued at the start of the fiscal third quarter. To be sure, Dahl said he remains concerned about whether the company has made recent improvements. However, the analyst believes Toll Brothers is a relative outperformer due to its resilient higher-than-peer-average margin profile and cheap valuation. Shares were up nearly 1% Thursday before the bell. Shares are up more than 30% in 2023. — CNBC’s Michael Bloom contributed to this report.
