Toll Brothers's Bet on the High-End Consumer

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Aug. 20 (Bloomberg) -- In today's Triple Threat, Bloomberg's Julie Hyman, MKM Partners' Megan McGrath and TradingBlock's Tim Biggam preview Toll Brothers' earnings with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Megan mcgrath has a strategy.

Play it out for us.

New home sales, existing sales, the supply is tight.

You look at the income estimate in terms of growth, sales growth of about 26%, and as you mentioned this was a luxury homebuilder, so if you look at an average price in the second quarter, $577,000, whether you are talking about homebuilding were retail, we are seeing resistance to downturn on the high end of the spectrum, we have buying of luxury goods, for example.

Talking about new-home sales, the next numbers will be coming out on friday.

There is a decrease in july in terms of the rates at a five- year high in june, historically high in the recent past at a high level.

All right, the numbers come out tomorrow morning, you are at 25 cents, shy, why is that?

We lowered our numbers and a couple of weeks ago when the company announced that a few of their luxury high-rise settlements would go into the next quarter.

We may be looking more aggressively than the rest of the street, but there is only one thing to worry about tomorrow, what does the company said about the impact of higher mortgage rates on their business?

If they can say that, stocks should go up nicely tomorrow.

Correct me if i am wrong, but the average price was purchased with cash, right?

Yes, they have a higher percentage than most builders, 30% of their buyers are cash, which should insulate them from the concerns that have been hitting the inspector pretty hard.

As you listen to julie and meghan, what sort of trade takes place in your mind?

Implied volatility is a fancy way is a level of nervousness, highest it has been since june in november of last year.

I am a bit bullish based on the fact that everyone is so fearful, september 30 puts are slightly on the money here, bringing in 55 cents, i would be a willing buyer here, but if not i would get to keep that rich option premium.

Understood, you are selling the 30, buying the 28. the question to you, meghan.

Looking at the earnings for this company, in 2005 that made $4.80. this year it is 89 cents.

They're making a fraction of what they used to make.

Will we ever see numbers like 489 out of toll brothers again?

It will take some time.

That was the biggest year of the housing bubble.

We should not be factoring that in any time soon, but the company should be seeing nice, steady growth for the next couple of years.

In the case-shiller price index, that is still 25% off highs.

If that is below the highs, toll brothers earnings, of what are the reasonable expectations from your point of view?

I think he will probably see it start to decelerate, right?

A 12% increase last month, probably the same next month, and as we move forward and we should expect that to decelerate.

For a healthy market be want it to start decelerating a bit.

Over the next 12 months the mid- single digits is probably where we will wind up.

This text has been automatically generated. It may not be 100% accurate.

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