Toll Brothers (TOL) Acquires Thrive, Expands In Southeast

In a bid to expand its range of geographies, product lines and price points, Toll Brothers, Inc. (NYSE:TOL) acquired Thrive Residential. With the acquisition, the company expanded its footprint in the dynamic markets of Nashville and Atlanta — with favorable demographics and strong population growth. However, the terms of the deal have been kept under wraps.

Thrive offers diverse product lines to urban in-fill locations. Hence, this acquisition will enable it to continue the expansion of its operations in the dynamic Southeast. Toll Brothers’ recent acquisitions have been Sabal Homes in South Carolina and Sharp Residential in Atlanta.

Benefits of Thrive Buyout

Founded in 2006, Thrive Residential has delivered more than 1,000 homes across the Southeast market — since its inception. It primarily focuses on building mid- to high-end residences as well as designing communities that are unique to various homeowner lifestyles and the neighborhoods in which they are located. It has approximately more than $200 million in active projects in its development pipeline.

With this buyout, Toll Brothers acquired certain homebuilding assets — including 680 lots owned and controlled throughout Atlanta as well as Nashville. Notably, the acquisition is expected to add 10 selling communities by the end of fiscal 2020.

Solid Expansion & Favorable Housing Markets Bode Well

Toll Brothers has secured some of the most sought-after urban locations in the country, where land is scarce and approvals are not easy to obtain. With the help of its strong liquidity position, the company has secured most sought-after urban locations like New York City Market, Northern New Jersey, Washington DC and Philadelphia.

In 2019, Toll Brothers entered markets in Atlanta, Salt Lake City and Portland, OR. It is expanding northward on Florida's west coast into Tampa. Meanwhile, the company has been serving urban and suburban renters.

Also, owing to favorable housing market fundamentals, Toll Brothers has witnessed a rise in consumer demand that drove new orders. In the fourth quarter of fiscal 2019, its net signed contracts or orders were 2,031 units ($1.68 billion), up 18.4% year over year.

As of fourth-quarter fiscal 2019, through Toll Brothers Apartment Living, it had a pipeline of 20,000 units in various stages of approval and development across the country.

With improving demographics, low interest rates, record low unemployment, consistent wage growth as well as limited new and resale inventory in many markets, the company is optimistic about the opportunities that lie ahead.

Price Performance

Coming to price performance, shares of Toll Brothers have gained 30.6% in the past year compared with the industry's 48% rally. Challenging sales conditions in the luxury home markets and rising labor costs have been hurting its performance. Nonetheless, the company is well positioned to benefit from geographic expansions, resilient economy and improving demographics.

Zacks Rank & Stocks to Consider

Toll Brothers currently carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are PulteGroup, Inc. (NYSE:PHM) , M.D.C. Holdings, Inc. (NYSE:MDC) and D.R. Horton, Inc. (NYSE:DHI) . PulteGroup and M.D.C. Holdings, each sport a Zacks Rank #1, while D.R. Horton carries a Zacks Rank #2 (Buy).

PulteGroup has trailing four-quarter positive earnings surprise of 11.4%, on average. The company’s earnings beat estimates in all of the last four quarters.

M.D.C. Holdings’ 2020 earnings are expected to rise 17.2%.

D.R. Horton has three-five year expected earnings per share growth rate of 11.4%.

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