7. Toll Brothers Inc. (NYSE:TOL)
Number of Hedge Fund Investors: 46
Jim Cramer shared that Bank of America has raised its price targets for homebuilders, including Toll Brothers Inc. (NYSE:TOL), while also maintaining a buy rating on the company.
Toll Brothers Inc. (NYSE:TOL) is poised for growth, bolstered by strong performance in Q2 2024, during which it reported approximately $2 billion in revenue, driven by high demand for luxury homes. Improved gross margins reflect effective cost management and pricing strategies.
The luxury housing market remains robust, and as a leading builder in this sector, Toll Brothers Inc. (NYSE:TOL) is capitalizing on increasing consumer interest in premium homes, which is fueled by lifestyle changes and low inventory. Toll Brothers Inc. (NYSE:TOL) geographic diversification across various U.S. markets helps mitigate risks and allows the company to leverage regional trends. Additionally, a substantial backlog of homes under contract indicates promising future revenue potential and reflects consumer confidence.
Toll Brothers Inc. (NYSE:TOL) is also dedicated to sustainability, emphasizing energy-efficient building practices that attract environmentally conscious buyers, giving it a competitive advantage. Recent developments include expanding its product lines to offer more customizable home options and exploring new communities aimed at active adult living, targeting the growing number of older buyers looking for luxury homes.
Baron Real Estate Fund stated the following regarding Toll Brothers, Inc. (NYSE:TOL) in its Q2 2024 investor letter:
“We trimmed our position in Toll Brothers, Inc. (NYSE:TOL), America’s leading luxury homebuilder, during the second quarter following exceptionally strong share price appreciation over the last year and the Fund’s resulting large position size. Toll Brothers remains the largest position in the Fund, and we continue to be enthusiastic about the company’s long-term prospects.
Our meetings with CEO Doug Yearley and other key members of the company’s management confirm our view that the long-term prospects remain compelling. We believe Toll Brothers has the ability to grow its community count of homes by approximately 10% per year as the company continues to gain market share against its mostly smaller private competitors who lack scale advantages, brand awareness, and access to attractively priced financing. Further, Toll Brothers has a long runway for multi-decade growth as it targets the fastest growing income demographic in the U.S. – 16 million households with annual incomes of at least $200,000. According to the U.S. Census Bureau (September 2023), households with over $200,000 in annual income have grown approximately 10 times faster than all U.S. households in the last 10 years. Currently, Toll Brothers has captured only 0.06% of this important demographic group. For additional reasons we remain optimistic on our investment in Toll Brothers, please see the “Top contributors” section of our first quarter 2024 shareholder letter.”
