2/25/2010-Citigroup maintained its buy rating on Toll Brothers (NYSE:TOL) but lowered its price target to $24.00 from $25.00 to reflect a slightly lower estimate of trough tangible book value.
Analyst Josh Levin said, "While we are highly confident that a long TOL position will pay off handsomely, we are not sure if the payoff will take place next month, next quarter or in late '10. Given the long lag time between when its business fundamentals improve and when that improvement starts to flow though its income statement, it remains an open question as to exactly when investors will be willing to step up and pay more for the TOL story. As such, with its inability to post a profit in '10, the story lacks an identifiable catalyst. In a sector often dominated by fast money, we think the TOL story may require a bit more patience."
Levin continued, "Despite the lack of an identifiable near-term catalyst, we think TOL's cheap valuation coupled with low investor expectations makes for a favorable combination. Based on recent conversations, we think most investors have effectively left this stock for dead. To our mind, all of these factors suggest that TOL has less downside than its peers in a sell-off and that, if a positive near-term catalyst should unexpectedly emerge, it has the potential to really move this stock."
The bank revised its 2010 EPS guidance for the company from -$0.73 to -$0.72, versus consensus estimates of -$0.74.
