Toll’s Order Woes Acting As Sector Reminder (TOL, DHI, KBH, PHM)

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Toll Brothers Inc. (NYSE: TOL) is softening after its net loss rather than a small gain expected.  There is more to this than just an earnings story.  What is really the driving force is two equally concerning issues.  The first is that homebuilder stocks were already pricing in a huge recovery.  The second is that orders being up just under 20% actually failed to meet what many were hoping for.

In the price scenario, Toll’s shares are down over 5% at $22.40 but the 52-week trading range is $13.16 to $24.22.  Rival builder D.R. Horton, Inc. (NYSE: DHI) is down only about 1% at $13.81 but the 52-week range is $8.03 to $14.79. KB Home (NYSE: KBH) is down 5.5% at $11.11 but it has a 52-week range of $5.02 to $13.90.  PulteGroup, Inc. (NYSE: PHM) is down 2.7% at $8.35 against a 52-week range of $3.29 to $9.31.  As you can see, these are all up 50% to 100% from the lows of last year. 

Having an order gain of 19%, even if the dollar gains in contract dollars was up 40%, is just not good enough right now.  Not after the run we have seen.  Our understanding is that orders needed to be up 25% or even 30%.  Existing home sales are now thinning out as far as competition as the National Association of Realtors showed an existing housing supply of about 6.1 months.  That is the lowest reading in years now.