RBC Capital Markets thinks strong gains are in store for Toll Brothers as demand improves. The firm thinks sentiment surrounding the luxury homebuilder’s shares have been “overly negative.” Analyst Mike Dahl said “given TOL’s high-end, West Coast and build-to-order exposures,” recent trends show the company has experienced improvement similar to its peers. Dahl upgraded shares to outperform from sector perform. He also raised his price target to $77 from $55, implying more than 18% upside from Wednesday’s close. “We expect outsized order growth through 1Q’24 given easy comps, while we also view TOL’s long land bank as providing a margin advantage,” Dahl wrote in a Thursday note. “TOL has seen demand continue to improve through May, above normal seasonal trends. Deposits and foot traffic remain encouraging despite the return of 7% rates, though we note that the higher rates likely aren’t fully reflected in demand trends yet,” Dahl continued. He also noted pricing has ticked up. Toll Brothers announced its fiscal second-quarter earnings Tuesday after the bell. In addition to topping analysts’ estimates, management said a rise in demand from January has continued into the start of its third fiscal quarter. Dahl said he remains concerned as to whether the company’s recent improvements are sustainable. However, the analyst believes Toll Brothers is a relative outperformer due to its resilient margins profile higher than its peers’ average and an inexpensive valuation. Shares were up almost 1% Thursday before the bell. The stock has surged more than 30% in 2023. — CNBC’s Michael Bloom contributed to this report.
