Toll Bros. downgraded on industry fundamentals

Raymond James & Associates Inc. analyst Paul Puryear downgraded homebuilder Toll Brothers Inc. to market perform from outperform today, based on valuation and growing concerns about housing industry fundamentals. The downgrade came one day after the Horsham, Pa., luxury homebuilder reported its fiscal third quarter results, in which it posted a loss and 27% decline in net new home orders InvestmentNews, Sept 4. In a note, Mr. Puryear estimates Toll is trading at a 14% premium to its peers on average and this “may be prematurely discounting that a housing recovery is imminent.” Although Mr. Puryear applauded Toll’s strong balance sheet, unique business model and good cash flow, he expressed concerns about general housing market conditions – in particular, the effect rising foreclosures will have on pricing, the recent surge in mortgage delinquencies, the drop-off in homebuyers in the market and rising construction costs. Raymond James is based in St. Petersburg, Fla.