Toll Brothers is trading at a discount, so investors would be wise to scoop up its shares now, according to Morgan Stanley. The investment bank initiated coverage of the homebuilder with an overweight rating. It also put a $159 price target on shares, suggesting 18% upside from Wednesday’s close. “TOL’s affluent buyers and pricing power support more resilient margins and earnings, yet the stock trades at the lowest [price-to-earnings ratio] in our coverage … we see more resilient through-cycle earnings,” analyst Adam Kramer said Thursday in a note to clients. Shares of Toll Brothers have fallen more than 14% over the past three months as mortgage rates have fluctuated and costs tied to homebuilding have climbed, threatening to pressure the luxury home company’s margins. TOL 3M mountain Shares are down more than 14% over the past three months. The stock trades at a forward price-to-earnings ratio of roughly 10, putting it at a greater discount versus its historical average to other stocks covered by Morgan Stanley, according to the bank. Kramer added that Toll Brothers is positioned favorably amid a bifurcation in the housing market. “All cash buyer % and positioning in K-shaped economy limit rate sensitivity & creates a differentiated & resilient story, though [Toll Brothers is] still exposed to wealth effects,” the analyst wrote. Morgan Stanley’s call falls in line with consensus on Wall Street. Of the 19 analysts covering Toll Brothers, 14 have a buy or strong buy rating on the stock, LSEG data shows.
