6. Toll Brothers Inc. (NYSE:TOL)
Number of Hedge Fund Investors: 46
Jim Cramer expresses his admiration for Toll Brothers Inc. (NYSE:TOL) when a viewer called to ask about his opinion about the homebuilder. He recently interviewed Toll Brothers Inc. (NYSE:TOL)’s CEO, Doug Yearly, and believes they are performing well. However, given the negative market reaction to Lennar’s recent earnings report, Cramer anticipates that Toll Brothers Inc. (NYSE:TOL)’ stock may also experience a decline. He plans to closely monitor the extent of the drop before making any investment decisions.
“Okay, I hear you. Look, I like Toll, and everybody knows I like Toll. I interviewed Doug Yearly not that long ago, maybe a week ago, and I think they’re doing well. But Lennar reported tonight, and people don’t like Lennar, so Toll will probably be down. We’ll have to take a hard look at how low it goes, but I do like Toll and I like it more than Lennar.”
Toll Brothers Inc. (NYSE:TOL) is experiencing a period of sustained growth, with Q2 2024 revenue reaching approximately $2 billion. This impressive performance reflects strong demand for luxury homes and the company’s ability to capitalize on favorable market conditions. Toll Brothers’ improved gross margins demonstrate effective cost management and pricing power, further enhancing its profitability.
The luxury housing market remains strong, and Toll Brothers Inc. (NYSE:TOL) is a leading builder in this segment, benefiting from rising consumer interest in premium homes linked to lifestyle changes and low inventory levels. Its geographic diversification across various U.S. markets helps mitigate risks and allows Toll Brothers Inc. (NYSE:TOL) to take advantage of regional trends. A strong backlog of homes under contract signals future revenue potential and reflects consumer confidence.
Toll Brothers Inc. (NYSE:TOL) is also committed to sustainability, focusing on energy-efficient building practices that appeal to environmentally conscious buyers, enhancing its competitive edge. Recent announcements include expanding product lines to offer more customizable home options and exploring new communities for active adult living, targeting the growing demographic of older buyers seeking 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.”
