Will This Downgrade Hurt Toll Brothers (TOL) Today?

NEW YORK (TheStreet) -- Toll Brothers  (TOL) has been downgraded to "neutral" from "outperform," Credit Suisse said on Wednesday. The firm said lower real estate demand could cut into margins. 

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Separately, TheStreet Ratings team rates TOLL BROTHERS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate TOLL BROTHERS INC (TOL) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 28.8%. Since the same quarter one year prior, revenues rose by 45.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 928.4% when compared to the same quarter one year prior, rising from $4.43 million to $45.58 million.
  • TOLL BROTHERS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TOLL BROTHERS INC reported lower earnings of $0.97 versus $2.79 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $0.97).
  • TOL's debt-to-equity ratio of 0.86 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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