Toll Bros. (TOL) PT Lowered to $139 at JPMorgan

JPMorgan analyst Michael Rehaut lowered the price target on Toll Bros. (NYSE: TOL) to $139.00 (from $148.00) while maintaining a Neutral rating.

The analyst comments "Following TOL’s 2Q (April-end) earnings call, we provide our key takeaways (pre-call bullets in the body of this note). Following 2Q closings of 2.9K, well above guidance of 2.5-2.7K, TOL reiterated its FY25 closings outlook of 11.2-11.6K (up 4-7%; prior JPMe: 5%). Notably, of the 6,500 homes needed to reach its guidance midpoint, TOL anticipates roughly 4,500 closings from its 6,000-plus homes in backlog as well as roughly 2,000 spec deliveries out of its current total of 3,400 under construction (which include 1,028 completed specs). Regarding gross margins, following 2Q’s 27.5% (ex-interest and charges) being above guidance of 27.25% – driven by mix, cost controls and stronger leverage from higher than expected revenue – FY25 is still expected at 27.25% (prior JPMe: 27.1%). 3Q and 4Q gross margins are both expected at 27.25%, based on an outlook for no market improvement in 2H and spec incentives similar to 2Q. Partially offsetting lower spec margins are stronger than expected build-to-order margins as well as positive geographic mix. Overall, TOL is prioritizing price over pace in the current environment, in which it views demand, whose greater than expected softness in 2Q has continued into 3Q, as being fairly inelastic. Also, share repurchase, following $177M spent in 2Q25 (1H25: $200M), TOL raised its FY25 outlook to $600M from $500M (FY24: $628M), while it continues to expect cash flow from operations of ~$1B. On demand, following a softer than expected 2Q, with orders down 13% vs. TOL’s expectation of -1%, May sales pace has trended similarly to March and April, despite typically being below, while the company also noted that sales pace in June and July has historically been stronger than May. We slightly adjust our FY25E and FY26E EPS to $14.10 and $15.41, respectively, from $13.76 and $15.62, following 1Q25 results and reiterated FY25 guidance. As a result, we also slightly reduce our Dec. 2025 price target to $139 from $148, which is now based on a P/E target multiple of roughly 9x our FY26E EPS (previously 9.5x). We view our target multiple, roughly one turn above where the stock is trading against our FY25E EPS but roughly in-line with the larger-caps’ historical mid-cycle 9-10x range, as reasonably reflecting our market view and fundamental outlook for the builders. Lastly, we maintain our relative Neutral rating versus its peers, as we view its relative valuation as somewhat attractive but still fairly reflecting our relative fundamental outlook."

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