Will Toll Brothers' $13.75 EPS Target Hold Amid Softer Sales Volumes?

Toll Brothers, Inc. TOL operates in a housing market shaped by affordability constraints, shifting buyer preferences and volatile mortgage rates. The luxury builder continues to emphasize price discipline and operational efficiency to safeguard profitability. However, demand has softened, raising the question of whether the company can deliver on its fiscal 2025 earnings target of $13.75 per share, lower than $13.82 reported in fiscal 2024.

In the third quarter of fiscal 2025, home deliveries increased 5% from the prior year, while revenues grew 6%. Higher average selling prices supported this growth, with delivered homes averaging $974,000. Yet, order trends highlighted pressure from elevated mortgage rates. Net signed contracts fell 4% year over year in units, and backlog declined 19% in units and 10% in potential revenues. Despite lower volumes, pricing strength was evident as the average backlog price rose to $1.161 million from $1.044 million a year earlier. This reflects the resilience of affluent buyers who remain less sensitive to financing costs.

Profitability metrics showed mixed movement in the fiscal third quarter. Gross margin contracted 130 basis points (bps) year over year to 27.5%, reflecting higher incentives and product mix. At the same time, SG&A expenses improved 20 bps to 8.8% of revenues, supported by tighter cost control and efficiency initiatives.

While declining volumes remain a headwind, Toll Brothers benefits from a high-value backlog, efficiency gains and a customer base less reliant on financing. These factors provide flexibility to defend profitability, indicating that the EPS target for fiscal 2025 remains within reach despite a softer market backdrop.

Slower Volumes Pressure Leading Homebuilders

Softening sales volumes have become a common challenge across major homebuilders, with peers like Lennar Corporation LEN and D.R. Horton, Inc. DHI also facing growth headwinds as affordability issues persist in the market.

Lennar has relied on price incentives and mortgage buydowns to maintain sales volumes, but this has taken a toll on margins. In the fiscal second quarter of 2025, gross margins slipped to 18%, down from 22.5% a year ago. Lennar expects margins to stay flat sequentially, indicating limited room for near-term earnings improvement despite cost-saving initiatives.

D.R. Horton is also feeling the effect of slower volumes. In the third quarter of fiscal 2025, 81% of buyers used its incentive programs. While this approach has helped drive demand, D.R. Horton has pressured profitability. The company expects home closings in fiscal 2025 between 85,000 and 85,500, down from 89,690 in fiscal 2024.

TOL’s Price Performance, Valuation and Estimates

Toll Brothers’ shares have gained 32.2% in the past three months, outperforming the Zacks Building Products - Home Builders industry, broader Zacks Construction sector and S&P 500, as shown below.

TOL Price Performance

In terms of its forward 12-month price-to-earnings ratio, TOL stock is trading at 10.24, down from the industry’s 12.91.

P/E (F12M)

Over the past 30 days, the Zacks Consensus Estimate for TOL’s 2025 earnings per share has decreased to $13.82 from $13.95. The estimated figure indicates a 7.9% decline from the year-ago profit level.
 

Toll Brothers currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research