Toll Brothers Inc (TOL), PulteGroup, Inc. (PHM): Higher Rates Can’t Hinder Housing’s Recovery

Toll Brothers Inc (NYSE:TOL) has rising sales volume and unit prices
For the third quarter ended on July 31, Toll Brothers Inc (NYSE:TOL)’s net income was $46.6 million, or $0.26 per share. The latest income figures were down 24% from last year’s third-quarter results of $61.6 million, or $0.36 per share. The company’s total quarterly revenues were $689.2 million, up 24% over last year, and homebuilding deliveries were 1,059 units, up 10% compared to the same period last year .

According to CEO Douglas C. Yearley, both sales volume and prices increased during the quarter; this pattern is consistent with recent quarters. He confirmed that he believes the housing recovery is in its early stages. The company is committed to growth and increased its land position during the quarter. Toll Brothers Inc (NYSE:TOL)’s community count was 225 at the end of the third quarter, and is projected to grow 10% to 15% by the end of fiscal 2014 .

PulteGroup, Inc. (NYSE:PHM) has high growth expectations
PulteGroup, Inc. (NYSE:PHM) reported $36 million, or $0.09 per share, of net income for its second quarter ended June 30. Net income included charges for several events that took place in the quarter. In the prior year’s quarter, the company reported net income of $42 million, or $0.11 per share. CEO Richard J. Dugas Jr. believes the housing market is on track to a long-term recovery. He finds that consumers see good value in the market, despite a limited supply of housing inventory, rising prices, and higher interest rates.

Adjusted home sales gross margin for the third quarter was 23.9%, an increase of 360 basis points. Net new orders for the second quarter were 4,885 homes, down 12% from prior year. On a dollar basis, the value was $1.5 billion, a decrease of 5% from 2012 .

My foolish conclusion
The average PEG ratios for Toll Brothers Inc (NYSE:TOL) — 0.73 — and PulteGroup, Inc. (NYSE:PHM) — 0.51– are much less than the industry average of 1.92. Sales of Toll Brothers’ homes may also be less susceptible to rising mortgage rates since the company caters to a more affluent consumer. Both Toll Brothers and PulteGroup, Inc. (NYSE:PHM) have high five-year growth rate projections of about 54% and 30%, as compared to an industry average growth rate of approximately 20%.

Based on these numbers, and increasing evidence of a strengthening market, Toll Brothers Inc (NYSE:TOL) and PulteGroup may offer a good value for investors looking to invest in the early stages of the housing recovery.

The article Higher Rates Can’t Hinder Housing’s Recovery originally appeared on Fool.com.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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