As we frame our preview for the Toll Brothers earnings print this afternoon, we start with a quick look at last week’s results from underfollowed public homebuilder Hovnanian (HOV):
Yes, it was an unmitigated disaster up and down the P&L - gross margins -730bps Y/Y with an unexpected earnings loss and backlog of contracted homes declining 25%.
Shares, which touched ~$240 about a year ago, now sit at ~$98 after the 20% single-day decline and additional follow through today (-5%).
With this set of results in mind, take a look at where the TOL valuation sits into this afternoon’s print relative to the last few years of quarterly earnings history:
As we frame our preview for the Toll Brothers earnings print this afternoon, we start with a quick look at last week’s results from underfollowed public homebuilder Hovnanian (HOV):
Yes, it was an unmitigated disaster up and down the P&L - gross margins -730bps Y/Y with an unexpected earnings loss and backlog of contracted homes declining 25%.
Shares, which touched ~$240 about a year ago, now sit at ~$98 after the 20% single-day decline and additional follow through today (-5%).
With this set of results in mind, take a look at where the TOL valuation sits into this afternoon’s print relative to the last few years of quarterly earnings history:
Look at the stock reactions the last two two times TOL earnings coincided with a 10x forward multiple: -9% and -7% single day reactions.
We’ve said this several times at this point, but 10x forward earnings for a homebuilder like TOL anticipates a big, new bull market for new construction housing activity.
Spoiler alert: it ain’t happening. Immigration remains the primary impediment: less housing demand, and less cheap labor to build.
Rates are also failing to cooperate, further hampering affordability. Look at the 10Y yield just in the last three sessions:
The table below outlines Consensus expectations for key TOL metrics - we’ll have a recap published after the print.
Here is a full trading comp sheet of public homebuilders:
We are not positive on housing, and TOL has held up relatively well, leading us to lean negative into the print today.