Markets
TOL

New home sales report to impact Toll Brothers

What's Happening

Rising interest rates have put pressure on homebuilders in 2018, and this week's reports on new home sales and pending home sales will shine more light on the current housing market. TOL has had a tough year with shares down 32.5% year to date.

Technical Analysis

TOL was recently trading at $32.42 down $20.31 from its 12-month high and $3.74 above its 12-month low. InvestorsObserver's Stock Score Report gives TOL a 68 long-term technical score and a 61 short-term technical score. The stock has recent support above $30 and recent resistance below $34. Of the 10 analysts who cover the stock 2 rate it Strong Buy, 0 rate it Buy, 7 rate it Hold, 0 rate it Sell, and 1 rate it Strong Sell, TOL gets a score of 53 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

Housing stocks have been weak in 2018. The Federal Reserve's December rate hike marked the fourth rate hike of the year, and will continue to fuel fear over a housing slowdown. The December rate hike was widely expected, but the Fed did adjust its 2019 guidance to just two rate hikes from it previous forecast of 3 rate hikes. As rate hikes slow down, it will become more apparent as to the impact the higher rates will have on housing. So far housing has slowed, but by no means has crashed as some analysts feared would be the case, and if housing stabilizes homebuilder stocks could rally considering how sharply they have sold off during the year. TOL is trading in the lower end of its 52-week low with a forward P/E of below 7, so there is a good chance for a rally on any positive news on the sector. This week the market will get the report on November new home sales as well as November's pending home sales reports. Results that are in-line or better than expected could be the catalyst the sector needs to move higher now that the Fed has lowered its guidance for future rate hikes. The new home sales report is due December 27 and the pending home sales numbers will be released December 28. Analysts have an average price target of $37.63 on the stock.

Stock Only Trade

Bullish Trade

If you want a bullish hedged trade on the stock, consider a 3/15/19 22/27 bull-put credit spread for a $0.40 credit. That's a potential 8.7% return (37.8% annualized*) and the stock would have to fall 18% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an 3/15/19 38/43 bear-call credit spread for a $0.40 credit. That's a potential 8.6% return (37.8% annualized*) and the stock would have to rise 18.4% to cause a problem.

Covered Call Trade

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on InvestorsObserver.com


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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