) reported $1.92 billion in third-quarter contracts. Wachovia cut its rating on the stock to market perform from market outperform.
Analyst Carl Reichardt says the home builder's $1.92 billion in third-quarter contracts and 18% unit growth were both slightly below his forecast. He says key reasons for the downgrade are relative valuation and recent data which indicates slowing Washington D.C. market (represented about 23% of the company's 2004 deliveries and 15% of current community count). He says if this negative change accelerates, it could be catalyst for multiple compression.
Reichardt says a decline in the shares to a 15% premium would offset 2006 EPS growth (+20%) as a driver for the stock. Therefore, he views Toll Brothers as likely to offer returns more in-line with the broader market.