Toll Brothers Backlog Cut in Half
Originally Published In the News May 13, 2008 11:55 AM
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The recent move in homebuilding stocks seems to have exhausted itself for now; Toll Brothers (TOL-NYSE) earnings and NAR data were the latest catalysts to take the stocks down. Wayne Nef has been sticking to his guns on the names throughout the recent rally, and still thinks it is too early to buy them.
And Toll Brothers numbers were truly dreadful, and the spring selling season nothing to write home about:
Toll Brothers has reported preliminary second-quarter results for home-building revenues, backlog and contracts.
Home building revenues declined 30% year over year to $817.9 million. Backlog declined 50% year over year to $2.08 billion compared to $4.15 billion in 2007 and 13% lower than the first quarter’s backlog of $2.40 billion. Finally, gross contracts of $730.5 million for 1,237 homes were 49% and 39% lower, respectively, than last year’s second-quarter totals of $1.44 billion and 2,031 homes.
Net contracts (after cancellations) totaled 929 homes, or approx $496.4 million, which were lower by 44% in units and 58% in dollars than the second quarter of 2007.
In general, these numbers suck. Toll Brothers stock has rallied 50% off its lows as investors began looking forward to Spring. The above numbers show that their optimism was a bit misplaced. The stock is currently trading at about 1.09x book value, which is rather high considering the dismal sales results just reported. Typically, the builders should trade below book value during the downside of the cycle. Looking ahead, a near-term price target of $17 would bring the stock to about 0.8x book value, more in line with a typical downcycle valuation. Nef Value Research
Wayne might not want to buy ‘em here, but shorts might want to consider covering a little stock into the weakness; you never know when the animal spirits show up to bid up the XHB or ITB ETF’s, the market’s favorite proxies....
Nef Value Research
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