TOL reports their fiscal Q4 earnings tomorrow morning before the bell. The options market is implying about a 3% move, which is a bit shy of the 4 quarter avg. move of about 3.5%. TOL has massively out-performed the broader market in 2012 (up about 58%), but in relation to its homebuilder peers, its performance has actually been lackluster in 2012.
Here is a chart of 4 of the largest U.S. homebuilders over the past 2 years, including TOL (in red):
PHM and LEN have been the strongest performers, far outpacing the gains in TOL and DHI. In the long run, TOL and DHI are the higher-quality, less levered homebuilders (both with debt / equity ratios around 64%), compared to PHM and LEN (debt / equity ratios around 150%), which are much more levered to the cyclical ups and downs of the business. TOL and DHI actually at or above where the stocks were in 2004, before the real go-go days of the housing bubble, while PHM and LEN trade below their 2004 levels, despite their massive run in the past 2 years.
We’ll be watching the spread between low-quality and high-quality homebuilders going forward for signs of a change in the sectoral theme. For now, investors continue to give the low-quality the benefit of the doubt.