Toll Brothers Inc.'s stock surged 3% in morning trade Monday, after the home builder was upgraded at Susquehanna Financial, which cited valuation and upbeat earnings outlook for next year. Analyst Jack Micenko raised his rating to positive, after being at neutral for 2 1/2 years, and lifted his stock price target by $1 to $42, which is 17% above current levels. Micenko said he believes that results from Toll Brothers' California and City Living businesses are being underappreciated by Wall Street analysts, and that consensus estimates for gross margins in 2016 are "too low." He raised his 2016 earnings-per-share estimate to $3.04 from $2.81, compared with the FactSet EPS consensus of $2.70. "Builder stocks tend to react favorably to better than expected gross margins," Micenko wrote in a note to clients. The stock has lost 6.6% over the past three months, while the S&P 500 has slipped 4.9%.
Copyright © 2015 MarketWatch, Inc.