Institutional Selling In Toll Brothers Reaches A Peak
The institutions have been net-sellers of Toll Brothers (NYSE: TOL) stock for the last 4 quarters and their activity reached a peak in Q2 2022. The institutions sold more than $0.500 billion worth of the stock in Q2, more than the previous two quarters combined, and helped to drive the price action down to the lowest levels in almost 18 months. The caveat is that, while institutional selling reached a peak in Q2 and net activity has been bearish for the last year, the institutional buying has been almost as strong. The net of selling is less than $0.500 billion for the year which tells us that this market is in rotation; when one institution sells at the peak there is another waiting to buy on the dips.
There hasn’t been any analysts’ activity post-Q2 earnings release but it is only a matter of time. The results were better than expected but came with tepid guidance that may weigh on shares over the next quarters. Until then, the 14 current ratings amount to an Insidertrades.com consensus of Hold and that is firm and steady over the past 12 months. The consensus price target of $62.77 is up in the 1-year comparison, however, but offset by near-term weakness. The consensus target is about 36% above the recent price action but has come down a bit in the 90 and 30-day comparisons. If that trend continues price action could wallow near recent lows.
Toll Brothers Beats Q2 Consensus But Growth May Have Peaked
Toll Brothers had a great quarter, a record-setting quarter, but internal metrics suggest the growth may also be at a peak. While the Q2 results were better than expected the FY guidance was maintained due to a contraction in buying activity. The company says fundamental drivers of the housing market remain in place but the impact of rising prices is slowing activity. For now, rising prices are offsetting the decline in volume but it is a precarious balance and one we see tipping in favor of even slower sales later in the year. Until then, the company reported $2.2 billion in home sales for the quarter which is good for a gain of 19% over last year. The revenue also beat the consensus estimate and the strength carried through to the bottom line as well. On the bottom line, the $1.85 in GAAP EPS is up 83% versus last year due to margin expansion and it beat by a full quarter.
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The problem we have with the outlook is this: the backlog value increased by 35% versus last year on a 16% increase in home volume. That alone points to rising prices but when coupled with the new contract data we see a peak in growth. The value of signed contracts for the quarter grew to a record $3.1 billion but this is up only 1% versus last year and due entirely to higher prices. The volume of new orders is down 18% and outpacing the latest home sales data, this is not a good sign for the housing market. The fundamental demand drivers may be in place but they won’t mean squat if no one can afford to buy or move.
Capital Returns Should Help Support Toll Brothers Stock
Toll Brothers pays a healthy 1.8% dividend yield and recently increased its buyback program. The company increased it buyback allotment to roughly $900 million based on recent share prices, an amount worth 16% of the market cap and a reason to think lower share prices may not be on the way. Looking at the charts, the stock appears to be at the bottom and could be ready to move higher. Trading at only 4.4X its consensus estimate it is a value as well.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Toll Brothers (TOL) | $118.72 | -0.7% | 0.77% | 9.17 | Moderate Buy | $113.80 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
