Toll Brothers TOL

1
Toll Brothers (TOL)

• Craig Whiteman
• 10/14/04

2
What do they do?

• They design, build, market, and arrange financing
  for single-family homes.
• Toll Brothers also owns and operates golf courses
  and country clubs that go along with their
  communities.

3
Company Background

• Founded 1967
• Two brothers Bruce and Robert Toll were the
  founders
• Publicly traded since 1986
• The Toll Brother Realty Trust Group was formed in
  1998
• Fortune 1000 Company

4
Products and Customers

• Luxury homes for middle to high-income families
• The only national homebuilder to focus
  exclusively on the luxury housing market
• Their targets include move-up buyers and older
  adults (age 50 and older)
• Baby Boomer generation
• Average price of homes built is 556,000

5
Location

• Builds majority of homes in Pennsylvania and New
  Jersey
• They do offer homes in a total of 21 states
  including Florida, California, Texas, and Arizona
  
• Expanded to take advantage of the population
  growth forecast in other regions of the country

6
Competitors

• Centex Corp.
• D. R. Horton Inc.
• Lennar Corp.
• Standard Pacific Corp.
• Whitemark Homes Inc.

7
Growth Potential

• They own 48,300 lots, of which 29,100 have been
  sold
• About 20,000 lots on which they can build on
• In June 2004, they won a bid for nearly 2000
  acres in the Las Vegas Valley
• Reduce risk by not starting construction until
  after sales agreements are made
• Other businesses such as golf course design and
  landscaping are starting to take off

8
SWOT Analysis

• Strengths
• Only national homebuilders to focus exclusively
  on the luxury market
• Diversity of product lines
• Growth potential
• Weaknesses
• Luxury homes are not a necessity
• Prices could be to high

9
SWOT Analysis

• Opportunities
• Own about 20,000 lots on which they can build
• Las Vegas land
• Strong demand due to target market hitting their
  peak earning years
• Threats
• Competitors could start focusing more on luxury
  homes

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Pros

• 11 consecutive years of record earnings
• 12 consecutive years of record revenues
• 13 consecutive years of record sales contracts
• Stockholders equity and earnings have grown at a
  compound average annual rate of more than 23
  over past 10 years

11
Cons

• There is a chance that their open lots will not
  be sold
• They price themselves out of a large number of
  possible customers
• Homebuilding is very competitive
• Regulations could limit the amount of homes they
  can build in certain areas

12
6 Month Chart
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Intrinsic Value

• Intrinsic value 50.92
• Current Price 43.35
• Purchase Price 39.91
• Initial cost basis 3,991
• Current market value 4,335

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Recommendation

• Sell