Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Five Reasons Not to Build Your Portfolio with Toll


Company has missed estimates three quarters straight.

Will housing come back -- and with a vengeance -- at some point? In my humble opinion, as sure as the sun is going to rise tomorrow, it will happen. And that's a major reason why I think home-building stocks could really rack up super sweet gains in time. But near-term, with the domestic economic situation about as clear as a pair of welder's goggles, I'm reluctant to take a leap of faith.

That said, today I'd like to drill down into Toll Brothers (TOL) in more detail because the upper-crust home-builder is due out with its third-quarter earnings this Thursday.

Here are some of thoughts:

1. There's no argument that Toll Brothers is a quality builder with a quality name, and actually, a quality management team. But let's face facts: How many people are talking about dropping mid-6 digits on a home these days and are ready to take on a jumbo mortgage? Toll, because it's in the higher-end of the home-building spectrum, needs the economy to do better in order to drag in the big dough.

2. It seems like investors are jumping on the bandwagon in hopes of a pretty robust turnaround in the sector and the economy. But what happens if we get one of those W-shaped recoveries, or if interest rates jack up, or another economic shoe drops sometime in the near to intermediate future? Fact is, I see no reason for this stock to trade north of $20 with the losses it's expected to offer up. By the way, it's slightly peculiar that insiders have been mum, isn't it?

3. Although the company pointed out earlier in the month that its cancellation rate was pretty low in the third quarter (4.9%), the following comment in that same release shows that not all is peaches and cream: "In FY 2009's third-quarter home building deliveries and revenues of 792 units, or approximately $461.3 million, declined by 36% and 42%, respectively, compared to FY 2008's third-quarter home building deliveries and revenues of 1,244 units, or $796.7 million."

4. The data shows that the last 3 quarters straight, the company has missed estimates. Maybe that will turn around this quarter, but I'm not holding my breath. Note that the current estimate for the period is a loss of $1.26. I'm not expecting its top management to paint a super sexy picture of what the near-term future may hold.

5. I'm a tad more optimistic when it comes to Toll and the building space than I was a few months/quarters back. However, the situation could be a smidge more interesting if the stock were in the mid teens.

Hey, have a great day!
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos