Toll Brothers Earnings Preview – Expectations High Leading In For TOL

Toll Brothers reports fiscal Q1 earnings after today’s closing bell, with expectations running high after the stock made a new ATH. The quarter tests whether the luxury homebuilder can defend its adjusted gross margin framework after stepping down full-year guidance to 26.0% from prior-year levels near 27.0%.

Consensus sits at $2.11 EPS on $1.86B revenue, marginally above the company’s own delivery midpoint of 1,850 homes at $990,000 average price, implying $1.83B of home sales revenue. The setup creates limited room for a volume-driven beat; margin execution and spring selling commentary will determine whether the stock sustains its recent 36% annual gain.

The valuation context is unusually tight. Toll Brothers stock (NYSE:TOL) trades at 12.3x trailing earnings, a 35% discount to the Household Durables industry average of 18.6x, yet sits 6.7% above the consensus analyst target of $155.60. The price has added 20% since the start of the year, significantly outperforming markets leading in.

That combination suggests the market is pricing in either a margin recovery that analysts have not yet modeled or a demand inflection that the current estimate set does not capture. The quarter will clarify which narrative holds.

Recent estimate behavior reinforces the cautious posture. Over the past 30 days, analysts have held EPS estimates essentially flat, with minimal revisions in either direction. That stability follows a fiscal Q4 miss in December, when the company printed $4.58 EPS against a $4.88 consensus on revenue of $3.41B.

Management attributed the shortfall to delayed Apartment Living transaction timing rather than core homebuilding weakness, but the market’s 4.2% after-hours selloff signaled skepticism about the lower FY’26 margin framework. The question now is whether Q1 execution can validate the guide or force another reset.

Consensus Estimates

Consensus expectations align closely with management’s December guidance, leaving minimal cushion for a headline beat on volume alone. The company guided to 1,850 deliveries at a $990,000 average selling price, implying $1.83B of home sales revenue at the midpoint. The $1.86B consensus represents only 1.6% upside to that framework, well within normal execution variance. The EPS estimate of $2.11 sits roughly 3% above the implied guidance figure of approximately $2.05, calculated from the 26.25% adjusted gross margin and 14.2% SG&A ratio targets.

The estimate range is narrow, with the high-end EPS forecast of $2.24 only 6% above consensus. That compression reflects limited visibility into pricing power or mix improvement, particularly after management emphasized “price and pace” tradeoffs throughout fiscal 2025. The 20.4% year-over-year EPS growth looks strong in isolation, but it compares against fiscal Q1 2025’s $1.75 print, which missed estimates by 14.8% due to impairments and apartment-related timing issues. The base effect flatters the growth rate.

The adjusted gross margin assumption of 26.25% represents the critical constraint. This figure is 100 basis points below the 27.25% level that prevailed through the first three quarters of fiscal 2025, and management has signaled that the full-year FY’26 framework is 26.0%. If the quarter prints at or below 26.25%, it validates the lower profitability regime. If margin comes in above 26.5%, it opens the door to upward revisions for the remainder of the year. Revenue can meet or modestly beat without moving the stock if margin disappoints.

Management Guidance and Commentary

“We are guiding fiscal first quarter 2026 home sales revenue to a range of approximately $1.75 billion to $1.91 billion, with deliveries of approximately 1,775 to 1,925 homes at an average delivered price of approximately $975,000 to $1,005,000. We expect our adjusted home sales gross margin for the first quarter to be approximately 26.25%, and our SG&A as a percentage of home sales revenue to be approximately 14.2%.”

Management’s December 8 guidance set a conservative framework that assumes no margin expansion from the prior quarter’s 26.0% adjusted gross margin level. The 26.25% Q1 target represents only 25 basis points of sequential improvement, well below the seasonal patterns observed in prior years when spring selling typically drove better mix and reduced incentive pressure. The company explicitly guided SG&A to 14.2% of revenue, implying limited operating leverage despite the 20% year-over-year EPS growth headline.

The delivery range of 1,775 to 1,925 homes spans 150 units, or 8% of the midpoint. That width is consistent with historical guidance bands, but the $975,000 to $1,005,000 average price range carries more significance. The $30,000 spread represents 3% of the midpoint and signals uncertainty about whether the company can hold pricing or must lean on incentives to clear inventory into the spring season. The midpoint of $990,000 is up roughly 1.5% from the prior quarter’s $975,000 level, but that modest increase could reflect geographic or product mix rather than pricing power.

“We continue to focus on balancing price and pace to optimize returns in what remains a challenging affordability environment, particularly at the lower end of the market.”

This framing, repeated across multiple quarters in fiscal 2025, underscores that demand is not accelerating. The company is managing conversion and backlog rather than riding a volume wave. The August 2025 commentary on “softer demand environment” and “affordability pressure” has not been walked back, even as the stock rallied 36% over the past year. The market appears to be pricing in execution and margin stability rather than a demand inflection, which raises the bar for guidance commentary on spring selling trends and order pace.

The gap between consensus revenue of $1.86B and the guidance midpoint of $1.83B is only $30 million, or 1.6%. That leaves almost no room for a volume-driven upside surprise unless average selling price comes in materially above $990,000 or deliveries exceed 1,925 homes. The EPS beat, if it materializes, will need to come from margin outperformance, lower SG&A, or favorable mix. Conversely, even a modest revenue beat will not protect the stock if adjusted gross margin prints at or below 26.0%, as that would signal the lower profitability framework is structural rather than transitory.

Analyst Price Targets & Ratings

Wall Street sentiment on Toll Brothers is cautiously neutral, with the consensus rating of 3.2/5.0 falling squarely in “Hold” territory. The distribution shows 54% of analysts rating the stock Buy or Strong Buy, while 36% maintain Hold ratings. The consensus target of $155.60 implies 6.3% downside from current levels, reflecting skepticism about the sustainability of the stock’s recent rally and concerns about the lower margin framework.

Sector & Peer Comparison

Toll Brothers trades at a modest premium to the large-cap production builders on a trailing P/E basis, with a 12.3x multiple versus D.R. Horton’s 11.8x and Lennar’s 10.2x. That premium reflects the company’s luxury positioning and higher average selling prices, which historically command better margins and less cyclical demand exposure. However, the current 12.3% profit margin trails D.R. Horton’s 14.1%, PulteGroup’s 15.2%, and NVR’s 16.9%, indicating that the luxury positioning is not translating into superior profitability at present.

The forward P/E of 11.7x sits in the middle of the peer group, suggesting the market is not pricing in significant margin expansion or earnings acceleration relative to competitors. NVR’s 16.2x trailing and 15.4x forward multiples reflect its best-in-class profitability and asset-light model, while KB Home’s 8.6x trailing multiple reflects its exposure to lower price points and tighter margins. Toll’s valuation implies the market views it as a steady execution story rather than a growth or margin expansion candidate.

The 12.3% profit margin is the key relative weakness. Toll’s luxury focus should theoretically support higher margins than volume builders, yet the company is underperforming on this metric. The 26.0% adjusted gross margin framework for FY’26 compares unfavorably to the 27.0%-plus levels achieved in prior years, and the SG&A ratio of 14.2% is elevated relative to peers who benefit from greater scale. If the company cannot demonstrate margin improvement in Q1, the valuation premium to Lennar and D.R. Horton becomes harder to justify, particularly given those builders’ superior profitability and larger scale.

The stock’s 36% gain over the past year has outpaced most peers, yet the forward P/E of 11.7x suggests the market is not extrapolating that momentum into higher earnings growth expectations. The disconnect between recent price performance and forward valuation multiples indicates that much of the rally has been multiple expansion rather than estimate revisions. That setup makes the stock vulnerable to a derating if Q1 results or guidance disappoint, as the valuation cushion is limited.

Earnings Track Record

Toll Brothers has beaten EPS estimates in 17 of the last 20 quarters, an 85% success rate that ranks among the best in the homebuilding sector. The average surprise of 9.0% reflects consistent execution and conservative analyst modeling, particularly during the 2023-2024 period when the company delivered outsized beats ranging from 26.4% to 49.2%. However, the recent pattern shows a material shift: the last two fiscal Q1 reports have both missed estimates, with the January 2025 print missing by 14.8% and the October 2025 print missing by 6.3%.

The fiscal Q1 miss pattern is notable because it coincides with the company’s seasonally weakest quarter for deliveries and the period when guidance for the remainder of the year is established. The January 2025 miss was attributed to impairments and apartment-related timing issues, while the October 2025 miss was tied to delayed Apartment Living transaction closings. Both explanations point to non-core items affecting reported EPS, but the market’s reaction in each case was negative, with the stock declining 5% and 4.2% in after-hours trading, respectively.

Post-Earnings Price Movement History

The post-earnings price movement history reveals a consistent pattern: the stock tends to sell off regardless of whether the company beats or misses estimates. Over the last seven quarters, the average next-day move is negative 1.5%, with beats producing an average decline of 0.7% and misses producing an average decline of 3.4%. This behavior indicates that guidance and forward commentary matter more than the reported quarter’s results, and that the market is quick to punish any indication of weakening demand or margin pressure.

Expected Move & Implied Volatility

The options market is pricing a 4.8% move in either direction following the earnings release, translating to a range of $158.14 to $174.10 from the current price of $166.12. That expected move sits slightly above the 4.5% average absolute move observed over the last seven quarters, suggesting options traders are anticipating a reaction consistent with recent history rather than an outsized event. The 32% implied volatility level is elevated relative to the 28% realized volatility over the past 30 days, indicating some premium for event risk.

Expert Predictions & What to Watch

Key Outlook: Guidance Will Drive the Trade

The setup is asymmetric to the downside. Consensus sits only 1.6% above the revenue guidance midpoint and 3% above the implied EPS figure, leaving minimal room for a volume-driven beat. The company has guided adjusted gross margin to 26.25% for the quarter and 26.0% for the full year, both below the 27.0%-plus levels achieved in fiscal 2025. If the quarter prints at or below 26.25% on margin, it validates the lower profitability framework and removes the possibility of upward revisions for the remainder of the year.

Key Metrics to Watch

The adjusted gross margin is the single most important metric because it determines the earnings trajectory for the full year. The company has guided to 26.25% for Q1 and 26.0% for the full year, both below the 27.0%-plus levels achieved in fiscal 2025. If the quarter prints above 26.5%, it would suggest that the conservative framework has upside and that the company is managing price and pace more effectively than the guidance implies. That result would likely trigger upward revisions to full-year estimates and support the stock’s recent rally.

Deliveries and average selling price provide the revenue anchor. The guidance midpoint of 1,850 deliveries at $990,000 ASP implies $1.83B of home sales revenue. Consensus sits at $1.86B, only 1.6% above that figure. A beat on revenue will require either deliveries above 1,900 units or ASP above $995,000, both of which would indicate strong execution and favorable mix. A miss on either metric would raise concerns about demand softness or the need to increase incentives to clear inventory, both of which would pressure margin assumptions.

Net signed contracts and backlog are the forward-looking demand indicators. The company has emphasized “price and pace” tradeoffs throughout fiscal 2025, signaling that it is managing conversion rather than riding a volume wave. A sequential increase in backlog would validate that spring selling is gaining momentum, while a decline or rising cancellation rate would indicate that demand is not accelerating despite the stock’s 36% annual gain. Management’s commentary on order trends will be scrutinized for any indication that affordability pressure is easing or that incentive levels are stabilizing.