Why Compass Point Is Still Neutral On Toll Brothers

In a report published Tuesday, Compass Point analyst Wilkes Graham maintained a Neutral rating on Toll Brothers Inc. (NYSE: TOL), with a price target of $37.50.

In the report, Compass Point noted, "TOL reported 1Q15 earnings with Core EPS of $0.44, beating both our estimate and the Street's consensus of $0.29. The beat to our estimate was largely driven by higher than expected closings and ASP…Management continues to expect FY2015 HB margins to be flat yoy (consistent with their previous guidance), and projects delivering approximately 32% of units from their 1Q15 backlog at an average price of $720k- $740k in 2Q15."

"...While they remain the dominant luxury builder in the suburban Washington, DC to Boston corridor, their growth in the West and South has expanded their brand into more locations and product lines," Graham commented, while adding that CA had contributed 29% of the value of "the company's signed contracts at an ASP of approximately $1.1M." Texas added 11% of the value of contracts, with the Dallas division being the main contributor.

"Management noted that while there have been worries concerning the Houston market due to the oil price depreciation of late, their sales/community are actually stronger yoy, and mentioned that not one 3rd party builder has stepped away from their commitment at their several Houston master planned communities (MPC)," the analyst said.

The EPS estimate for 2015 has been reduced from $2.16 to $2.09.