Homebuilders Trade Lower After Toll Brothers Disappoints

The theme this earnings season has been one of expansion as more sectors experience year-over-year growth. Thus far, the percentage of S&P 500 stocks that are outperforming the index is on pace to exceed that of last year.Last week was the third consecutive such stretch where we saw markets hit with a sizeable morning gap down due to disruptive news. From tariffs and DeepSeek – to last week’s hotter-than-expected inflation data – the market has faced several major headwinds. Its ability to absorb seemingly negative news and rebound in a strong manner speaks to the underlying demand for stocks in this environment.Unfortunately for homebuilders, they’ve been left in the dust.Sticky Inflation Casts Doubt on Rate PathIn general, homebuilders are feeling less optimistic about the housing market amid high costs and elevated mortgage rates. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index registered at 42 in February, a 5-point drop from January and the lowest level in 5 months.Inflation data from January showed part of the Fed’s job – maintaining stable prices – remains quite difficult. The producer price index (PPI) showed wholesale prices rose 0.4% last month, more than the 0.3% projection. January’s PPI rose 3.5% from a year ago.On the consumer end, headline CPI showed prices increased 3% over the prior year in January, an uptick from December’s 2.9% annual gain. On a monthly basis, headline inflation rose 0.4%.Excluding food and energy, the “core” CPI displayed an annual increase of 3.3%, while the core measure rose 0.4% on a monthly basis. All figures were above forecasts and higher than those from December.Notably, market participants pared back bets on interest rate cuts this year, pricing in just one cut following the data.Toll Brothers Falls Short of EstimatesToll Brothers TOL appears to be the latest victim. Yesterday evening, the luxury homebuilder came out with fiscal first-quarter earnings of $1.75 per share, missing the Zacks Consensus Estimate of $1.99/share by 12.06%. The bottom line plunged 22.2% from the year-ago period. Revenues of $1.86 billion also fell short of projections and decreased 4.6% year-over-year.The important metrics came in light primarily due to impairments and a delayed joint venture property sale. But management noted that affordability constraints and growing inventories are pressuring sales.The fact that mortgage rates remain high is certainly taking a toll on signing activity in the housing market. A shortage of buildable lots and skilled labor is also limiting home production.  The recent miss was the second such event over the past four quarters. Toll Brothers, a Zacks Rank #4 (Sell), has delivered a trailing four-quarter average earnings surprise of -3.2%.TOL stock was down more than 8% early Wednesday morning before paring some of the losses:Image Source: StockChartsBottom LineDespite weakness from homebuilders, the results out of the Q4 earnings season speak to a resilient corporate backdrop. Total S&P 500 earnings are expected to be up 13.3% from the same period last year on 5.5% higher revenues.Nearly 400 companies are set to report quarterly results in the shortened trading week ahead, including more than 40 S&P 500 companies. Be sure to stay abreast of the latest reports as the fourth-quarter earnings season continues to wind down.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Toll Brothers Inc. (TOL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks