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Toll Brothers (TOL) Q2 Earnings: Will it Pull Off a Surprise?

Zacks Equity Research
Updated

Toll Brothers Inc. TOL is set to report its second-quarter fiscal 2016 results on May 24, before the market opens.

Last quarter, it posted a negative surprise of 2.44%. Moreover, the company missed estimates in three out of the past four quarters, resulting in an average negative surprise of 5.51%. 



Let’s see how things are shaping up for this announcement.

Factors to Consider

Toll Brothers’ order trends remained strong through 2015 and first-quarter fiscal 2016 and should continue to be so for the rest of 2016. The company is witnessing strong demand and pricing power in California.
 
However, Toll Brothers’ earnings per share have weakened since the third quarter of 2015. The company reported soft margins, lower home deliveries and lesser-than-expected increase in the average price of homes delivered in the prior quarter. Further, the fiscal 2016 guidance for total revenue, deliveries and ASPs was tightened during the first quarter 2016 conference, as the company expects longer production cycle due to a strained labor market and increased complexity of homes. These headwinds are likely to continue in the soon-to-be reported quarter

Earnings Whisper?

Our proven model does not conclusively show that Toll Brothers is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP is 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 48 cents.

Zacks Rank: Toll Brothers carries a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other construction companies you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:  

TopBuild Corp. BLD, with an Earnings ESP of +2.27% and a Zacks Rank #1 (Strong Buy).

Vulcan Materials Company VMC, with an Earnings ESP of +1.00% and a Zacks Rank #2 (Buy).

Louisiana-Pacific Corp. LPX with Earnings ESP of +9.09% and a Zacks Rank #3.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
LOUISIANA PAC (LPX): Free Stock Analysis Report
 
VULCAN MATLS CO (VMC): Free Stock Analysis Report
 
TOLL BROTHERS (TOL): Free Stock Analysis Report
 
TOPBUILD CORP (BLD): Free Stock Analysis Report
 
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Zacks Investment Research