On Friday, JPMorgan issued a new price target for Toll Brothers (NYSE:TOL), a luxury homebuilding company. The firm downgraded the stock from Overweight to Neutral and reduced the price target to $150 from the previous $166. This adjustment reflects a shift in the anticipated market conditions and fundamental outlook for homebuilders. According to InvestingPro data, the stock has experienced a 10% decline over the past week, though it maintains a strong 35% gain year-to-date.
The revised price target is based on a target multiple of approximately 9.5 times the estimated earnings per share (EPS) for 2026, a reduction from the prior multiple of around 10.5 times. JPMorgan's analysis suggests that the target multiple is about half a turn below the current stock valuation against the projected EPS for 2025, aligning with the historical mid-cycle range of 9-10 times for larger-cap stocks in the industry.
Currently, Toll Brothers trades at a P/E ratio of 9.14x, which InvestingPro analysis indicates is relatively low compared to its near-term earnings growth potential.
The downgrade comes amid expectations of a less favorable demand and supply environment for the housing market in 2025. JPMorgan anticipates that key demand drivers are unlikely to show improvement and that supply factors will not be as supportive of the housing market as they have been in the past.
Furthermore, JPMorgan's outlook for homebuilders indicates potential margin and return on equity (ROE) contraction in 2025. The firm also notes the possibility of more downside risk than upside potential for builders' sales pace and gross margins over the next one to two years. This cautious stance reflects broader concerns about the future performance of the homebuilding sector.
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