Toll Brothers (TOL) Q3 Earnings: Will it Pull Off a Surprise?

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Toll Brothers Inc. TOL is set to report its third-quarter fiscal 2016 results on Aug 23, before the market opens.

Last quarter, it posted a positive surprise of 6.25%. However, the company missed estimates in three out of the past four quarters, resulting in an average negative surprise of 3.95%.

TOLL BROTHERS Price and EPS Surprise

 

TOLL BROTHERS Price and EPS Surprise | TOLL BROTHERS Quote

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

Factors to Consider

Toll Brothers reported higher average selling prices (ASPs), home deliveries and strong margins in the second quarter of 2016, a trend which may continue in the soon-to-be reported quarter.

However, order growth was modest during second-quarter 2016 owing to a decline in the number of homes signed in the California region. The number was soft particularly in North California due to a lack of inventory for sale and higher prices. Northern California volumes are expected to remain weak in the near term. The company expects some delays in home openings in North California till 2017.

However, demand in Southern California is expected on the higher side in the soon-to-be reported quarter’s results.

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 (Strong Buy), 2 (Buy) or 3 (Hold) 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 63 cents.

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

We caution against stocks with a 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 that they have the right combination of elements to post an earnings beat in their upcoming releases:  

Masco Corporation MAS, with an Earnings ESP of +2.33% and a Zacks Rank #3.

Vulcan Materials Company VMC, with an Earnings ESP of +0.78% and a Zacks Rank #3

Louisiana-Pacific Corp. LPX with Earnings ESP of +20.69% and a Zacks Rank #2.

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MASCO (MAS): Free Stock Analysis Report
 
LOUISIANA PAC (LPX): Free Stock Analysis Report
 
VULCAN MATLS CO (VMC): Free Stock Analysis Report
 
TOLL BROTHERS (TOL): Free Stock Analysis Report
 
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