TOL confirmed their sad forecast for 2006, cutting outlook by another 10%+.
This will punish many aspects of the market but also builders like DHI, who forecast big gains for next year.
Perspective time: TOL is expecting no less than$4.79 and as much as $5.27 for 2006. In 2004 the company earned $2.52 per share. 2005 comes in at $4.78, still surprising up .18, even after a year of analysts raising guidance. If you pretend 2005 never happened, you still have 2004-2006 growth of 25% per year. This is on a $34 stock with a p/e of 8.5!!!
This is not a trick as they have a 10 year growth history of 17% even if you throw out this year’s wild gains. The company has a PEG ratio of .49, need we say more?
Toll Brothers is a conservative forecaster and is heavily shorted (13%) and is now trading at the same price it started the year with. TOL’s “problems” are fairly unique to them as they are luxury home builders and they are running out of buildable, approvable land because they only want to build in the best neighborhoods and nice neighborhoods don’t want builders knocking down all their trees.
This stock will be a major buy when the FED actually stops raising rates so we can only hope the stock sells off some more today. At $34 though, this may be the most technically oversold stock I have ever seen so I will be looking for any reason to enter.
What is really tragic in this story is the way TOL and HOV are going to take down other fine home builders like DHI (11/16 pick @ $32, shorted at $36 on 11/29) who are forecasting 15% GROWTH next year.
DHI got slammed yesterday and should drop again today but that should be the end of the dip, even with the nasty UCLA forecast that there will be a “significant drop-off” in 2006.
Why does a TOL forecast get more weight than a DHI forecast? Because traders and analysts live in and know people who live in Toll Brothers’ homes. It’s that simple.
If TOL drops today then the whole sector is going down but there are only a few that I think are right for a real drop:
- KBH – still above the 200 dma of $67
- BZH – way too high with a p/e of 12
- PHM – may test 50 dma of $39
- LEN – broke through 200 and 50 dma yesterday
Any downgrade today will send the group dropping but if TOL is up then that means I’m not the only guy who thinks these guys deserve a break so we should stay away from the group until it settles down.
For most of these companies, a 20% drop will give you p/e’s of roughly 6 at which point we have a group of 401K candidates so we will have to keep tabs on TOL…
