UBS Upgrades Toll Bros. (TOL) to Buy
UBS analyst John Lovallo upgraded Toll Bros. (NYSE: TOL) from Neutral to Buy with a price target of $71.00 (from $74.00).
The analyst comments "We upgrade TOL shares from Neutral to Buy. We raise our FY22e-FY26e EPS and our PT from $71 to $74, still based on a P/E mult. of 6.5x our FY23e EPS, implying 1.5x on a FY22e P/B basis. We believe the stock's current 4.3x P/E mult. on our FY23e EPS (1.0x FY22e P/B, 0.8x FY23e P/B) more than reflects the potential for moderating industry growth, peak op. results in FY23e (both of which we model) and sell-side cons. est. that may need to be pared back (UBSe -10% below cons FY23 EPS on avg across builders). Perhaps most importantly, homebuilder valuations in general seem to imply an impending industry downturn (~30-40% decline in volume on avg. historically) and a sharp decrease in home values, both of which we view as unlikely (see our recent sector launch). We recognized that our constructive view of the homebuilder stocks could be bumpy, with near-term downside, when we initiated coverage roughly one month ago. However, we are now increasingly convinced that the cycle will have legs and elevated levels of builder profitability could persist for several more years."
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Shares of Toll Bros. closed at $48.93 yesterday.