Color on Pali's New Coverage of Toll Brothers (TOL)

July 21, 2008 10:05 AM EDT

Pali Research initiates coverage on Toll Brothers (NYSE: TOL) with a Neutral rating.

The firm said it has "long held admiration for this management team as being among the shrewdest of operators in the industry..." Pali believes that Toll is "one of the better capitalized builders today", but admits that "the attractive investment features to this story are, at present, balanced by risks..."

Pali said its Neutral rating is based on the fact that shares of Toll Brothers currently trade at a premium to its peer group: Toll trades at 0.84 the firm's FY09 estimated book value of $22.47, compared to the groups 0.70x book value. The firm said, given the nature of the company’s product and its rather lengthy land pipeline, we are not of the belief such a generous relative valuation is warranted at this time." Further, Pali believes Toll's fundamentals will be one of the last to recover.

Toll Brothers, Inc. engages in designing, building, marketing, and arranging finance for single-family detached and attached homes in luxury residential communities in the United States.

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