Toll Brothers (TOL) is expected to report lower fiscal year 2025 and 2026 earnings per share based on weaker results from peers, worsening spring trends, and signs of softness in the high-end market, RBC said in a note Thursday.

Analysts, including Mike Dahl, said they are lowering their EPS estimates for fiscal year 2025 and 2026 to $12.95 and $13.14, down from their previous forecast of $13.96 and $15.30, respectively. The analysts added they still like Toll Brothers compared to others due to its "attractive" land holdings, wealthier customer base, and low valuation relative to its returns. "However, the tactical setup is less attractive into the print, even as we believe investors already expect some blend of volume/margin risk."

The analysts said they are reducing their estimate for fiscal Q2 home orders by 15% to 2,559 units, down from their previous estimate of 2,995 units. This is below the market consensus projection of 3,029 units and management's guidance of about 3,000 units. They added that "the move is driven entirely by absorption now." For fiscal year 2025, their estimate for total orders drops 8% to 10,109 homes from 11,015 homes.

The analysts slightly reduced their fiscal year 2025 outlook for homebuilding revenue to $10.34 billion from the prior estimate of $10.75 billion. For fiscal Q2, their homebuilding revenue estimate remains unchanged at $2.49 billion. Their fiscal Q2 gross margin projection remains at 26.1%, but they lowered their fiscal Q3 gross margin forecast by 60 basis points to 25.6%, down from 26.2%, and for fiscal Q4, they now expect a 110 basis point drop to 25.1%, down from 26.2%. As a result, their full-year 2025 gross margin estimate drops 50 basis points to 25.6%, and the fiscal year 2026 gross margin forecast falls 110 basis points to 24.9%.

RBC adjusted its price target on Toll Brothers to $133 from $139 while keeping its outperform rating on the stock.

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