Toll Brothers (TOL) CEO Bob Toll has been denying the downturn, blaming the media, and/or predicting recovery for most of the last 18 months, but Citi analyst Josh Levin still believes him. One thing we’re reasonably sure of: Bob and Josh will be right eventually.
Josh rates TOL a Buy and was upbeat about Bob’s performance on the call:
In our opinion the most noteworthy aspect of today’s call was what we believe was a hint of guarded optimism in CEO Bob Toll’s tone and remarks. TOL sounded more upbeat than he did in recent calls and indicated that (1) traffic remains poor but has not deteriorated (2) pent-up demand exists as
evidenced by responses to company promotions (3) lower cancellations are a positive sign and (4) some parts of the Florida market are doing better.
Levin doesn’t harbor illusions about the dreadful state of the housing market. But he insists that TOL remains attractive as a result of its cheaper valuation, ample liquidity, and lack of debt:
Although housing market conditions are likely to continue to worsen, we think current valuations already reflect further deterioration. We think TOL offers one of the best risk-reward profiles in the sector given its substantial liquidity (~$1.5 billion of cash + ~$1.3 available under its credit facility), lack of debt maturities until ’11 and a management team with a track record of successfully exploiting dislocations in the real estate markets.
Levin rates TOL a Buy/High Risk and reiterates his $27 price target.
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