By coinnews 
00:00 Speaker A
Take a look at Toll Brothers maintaining its full year outlook, despite softer demand in the second quarter, the company CEO saying the long-term outlook for the new home market still remains positive. Joining us now with more J. McCandless, Wedbush Securities Senior Vice President of Equity Research, and J. You’ve got an outperform rating and $175 price target on Toll Brothers. Talk to me about your reaction to the print here.
00:32 Jay McCandless
Um, little little surprised, thanks for having me on. Um, little surprised the stock isn’t up more. Um, you know, it was a pretty handy earnings beat. Um, and I think if you look at what they said, um, about demand during the quarter. February was actually their weakest month, and then they saw order demand pick up in March and April, and it’s continued at that same level in May. Um, so that was that was really our big fear going into this print was that April was going to be soft and and May followed, but it’s actually the reverse of that. Um, they also said on the call that they’re they’re increasing their stock repurchase up to 600 million this year, 400 million of that is going to be spent in the back half of their fiscal year, which which ends in October. So, um, little surprised stock’s not up more, but longer term, still very positive on this name.
02:04 Speaker A
And talk to me about where they stand in relation to competitors, if Toll Brothers as a luxury builder had these decent numbers that you’re saying, are they more protected than other home builders in the luxury space?
02:27 Jay McCandless
Um, I I don’t know that they’re necessarily more protected, uh, but I think if if you look at their customer mix right now, roughly 70% of that customer mix, um, is not not completely rate independent, um, but what what management said on the call today is that that buyer who doesn’t necessarily worry so much where the rate is has really had a crisis of confidence, especially at the beginning of their their fiscal second quarter. Um, that confidence seems to be improving somewhat, and management didn’t put a number behind it, but said if they can get confidence back up for for more of their consumers and maybe get a little help on rates, that there’s plenty of underlying demand out there for the houses. And I think that’s very much in line with what we’ve heard from Toll’s competitors, both the move-up and the entry levels, that the demand’s out there, we just need need some of the headlines to settle down and need affordability, especially for that entry-level buyer, to start working in their favor again.
04:01 Speaker A
And my guest host, Brian, has a question for you as well.
04:06 Brian Sozzi
So Jay, we’ve already seen some challenges at the lower end consumer, um, over the last few years. What what would give you concern for the high-end consumer? They say it’s when the high-end consumer rolls over where you know, you really start to get concerned. So what would you be watching for?
04:35 Jay McCandless
Um, well, I think, you know, what Mr. Yearley gave us on the call today in terms of consumer confidence, maybe putting a little more emphasis on that than we have in the past of toll. Um, you know, historically it’s always been you watch what the stock market does and that usually drives Toll’s orders for the next couple quarters. And and they they affirmed that relationship on the call today, but it sounds like just general confidence levels may be more important to that buyer right now. Um, and then, you know, at a more base level, it’s it’s all about the jobs. If if you don’t have a job, you can’t get the house. And I think that’s whether you’re whether you’re a high-end consumer or low-end consumer, that that’s the same math for everybody. Um, so far the jobs picture has held up pretty well, but, you know, any any slippage there is something that could could give could make us more concerned about Toll and some of the other move-up names that we like at these levels.