Toll Brothers Before Q3 Earnings: Buy, Sell or Hold the Stock?

Toll Brothers, Inc. TOL is set to report its third-quarter fiscal 2025 results on Aug. 19, 2025, after market close. The key focus will be on the company’s ability to sustain strong margins and steady deliveries amid an uncertain housing market. The company delivered a record fiscal second quarter that exceeded expectations across all key metrics, including earnings per share of $3.50 (beating estimates by 22.4% and increasing 3.6% year over year) and revenue of $2.74 billion (above consensus mark by 9.5% and up 2.3%). Home deliveries totaled 2,899 units at an average price of $934,000. Gross margin reached 27.5%, and SG&A improved to 9.5% of sales, both ahead of guidance. Although net signed contracts declined 13% in units due to economic uncertainty, the $6.84 billion backlog remained solid. The company benefited from its affluent customer base—24% of buyers paid all cash and average LTVs were 70%.This leading builder of luxury homes surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, with an average surprise of 6.9%.How Are Estimates Placed for Toll Brothers Stock?The Zacks Consensus Estimate for the fiscal third-quarter earnings per share has remained unchanged at $3.59 over the past 30 days. The estimated figure indicates a decline from the year-ago reported EPS of $3.60. The consensus mark for revenues is $2.85 million, suggesting a 4.6% year-over-year increase.For 2025, Toll Brothers is expected to register a 0.8% increase from a year ago in revenues. Its bottom line is expected to witness a decline of 7.1% from a year ago. Below is what to expect in the fiscal third quarter for TOL stock.Image Source: Zacks Investment ResearchToll Brothers’ Q3 2025 GuidanceFor the fiscal third quarter, Toll Brothers projects home deliveries between 2,800 and 3,000 units, at an average selling price (ASP) of $965,000–$985,000. This compares with 2,814 deliveries at an ASP of about $968,200 in the year-ago period. We expect home deliveries to be up 5% year over year to 2,956 units in the fiscal third quarter at an ASP of $972,700 (up 0.5% from a year ago). The shift in ASP is partly tied to a greater mix of spec homes, where incentives have risen to about 7% of ASP, versus 5–6% in the recent past.We expect home sales to grow 55% to $2.88 billion in the quarter.Adjusted gross margin is guided to 27.25% for the fiscal third quarter, modestly below the 28.8% margin reported in the year-ago period, reflecting increased incentive use and a higher concentration of specs. SG&A expenses are expected to be 9.2% of home sales revenue compared with the 9% rate in the comparable quarter a year ago.Key Driving Factors Likely to Influence Toll Brothers’ Q3 2025 ResultsAffluent Customer Base Offers StabilityToll Brothers’ focus on luxury homes positions it to serve more financially resilient buyers. More than 70% of its business caters to move-up and empty-nester segments—many of whom have substantial equity in existing homes. Notably, 24% of fiscal second quarter buyers paid all cash, and the average loan-to-value (LTV) ratio was just 70%. This high-quality buyer profile insulates the company from affordability concerns that plague entry-level homebuilders.Diversified Geographic Footprint and Product RangeThe company operates in more than 60 markets across 24 states, offering homes priced from $300,000 to more than $5 million. Strong performances in New Jersey, Pennsylvania, New York, California, and parts of the Mountain West help offset softer markets like Phoenix, Florida, and the Pacific Northwest. Its flexible mix of build-to-order and spec homes also allows it to match local demand dynamics more efficiently.Challenges That May Pressure Q3 ResultsToll Brothers faces several challenges that could pressure results in the near term. Softer consumer confidence has already weighed on demand, with net signed contracts down double digits year over year, reflecting macro uncertainty, stock market volatility, and affordability concerns. To support sales, the company has modestly raised incentives to about 7% of the average selling price, which, while manageable, could erode margins if increased further. Another risk lies in the 1,900 spec homes that must be sold and closed in the second half to meet full-year delivery guidance—any slowdown in absorption or delays could affect results. Although its affluent customer base provides some insulation, broader economic headwinds, including potential interest rate moves, construction cycle delays, or renewed building material tariffs, remain sources of uncertainty. These factors highlight the delicate balance Toll Brothers must maintain between sustaining margins and driving enough volume in a cautious housing market.What the Zacks Model Unveils for Toll BrothersOur proven model does not conclusively predict an earnings beat for Toll Brothers for the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) for this to happen. This is not the case here, as you will see below.Earnings ESP: TOL has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.TOL Stock’s Price PerformanceToll Brothers stock has exhibited an upward movement in the past three-month period and outperformed the Zacks Building Products - Home Builders industry.Toll Brothers operates in the luxury homebuilding niche, but its performance is often compared with D.R. Horton DHI, Lennar LEN, and PulteGroup PHM. Toll Brothers’ stock has risen 23% in the past three months, trailing D.R. Horton’s 32.6% gain and PulteGroup’s 24.8% rise, but outperforming Lennar’s 18.7% increase.TOL’s 3-Month Price PerformanceImage Source: Zacks Investment ResearchTOL Stock’s ValuationIn terms of the forward 12-month price/earnings (P/E), TOL shares are currently trading at a discount to its industry.TOL’s P/E Ratio (Forward 12-Month) vs. IndustryImage Source: Zacks Investment ResearchWhy TOL Stock Is a Hold for Now?Toll Brothers’ affluent customer base, diversified geographic presence, and strong backlog provide a degree of resilience in an uncertain housing market. While higher incentives and macro pressures may weigh on margins, management’s strategic use of spec inventory should help support near-term deliveries.Importantly, Toll Brothers’ valuation is attractive relative to peers, with shares trading at a discount on forward earnings multiples. The stock has also delivered solid price gains over the past three months, outperforming part of its peer group. With the current Zacks Rank and an Earnings ESP that does not point to an immediate beat, the near-term upside may be limited. However, the company’s fundamentals, backlog visibility, and buyer quality argue for patience. TOL offers a balanced risk-reward profile—best suited to hold rather than chase aggressively ahead of results.Free Report: Profiting from the 2nd Wave of AI ExplosionThe next phase of the AI explosion is poised to create significant wealth for investors, especially those who get in early. It will add literally trillion of dollars to the economy and revolutionize nearly every part of our lives.Investors who bought shares like Nvidia at the right time have had a shot at huge gains.But the rocket ride in the "first wave" of AI stocks may soon come to an end. The sharp upward trajectory of these stocks will begin to level off, leaving exponential growth to a new wave of cutting-edge companies.Zacks' AI Boom 2.0: The Second Wave report reveals 4 under-the-radar companies that may soon be shining stars of AI’s next leap forward.Access AI Boom 2.0 now, absolutely free >>Want 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 PulteGroup, Inc. (PHM): Free Stock Analysis Report Toll Brothers Inc. (TOL): Free Stock Analysis Report Lennar Corporation (LEN): Free Stock Analysis Report D.R. Horton, Inc. (DHI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks