Surging Earnings Estimates Signal Upside for Toll Brothers (TOL) Stock

Investors might want to bet on Toll Brothers (TOL), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this home builder, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Toll Brothers, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $2.48 per share, which is a change of +5.53% from the year-ago reported number.

The Zacks Consensus Estimate for Toll Brothers has increased 14.22% over the last 30 days, as two estimates have gone higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $9.45 per share, representing a year-over-year change of -4.93%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Toll Brothers. Over the past month, three estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 9.07%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Toll Brothers currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Toll Brothers shares have added 6.5% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.

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