Toll Brothers has more room to run as high-income consumers in the K-shaped economy continue to splash cash on big-ticket purchases, fueling a housing recovery, according to Citi. The bank upgraded the luxury home building name to buy from neutral. It also hiked its price target on shares to $176 from $146, implying 19% upside from Thursday’s close. “Investor attention [is] turning to a modest recovery in ’27,” analyst Anthony Pettinari said Thursday in a note to clients. “We see TOL as outperforming in a K-shaped housing recovery as the only pure-play public luxury homebuilder.” Citi forecasts that single-family housing starts will increase 3% to 955,000 in 2027, reversing two straight years of declines. The bank also expects to see more signs of growth in the homebuilding industry as earnings season begins later this month, according to the bank’s analyst note. Growth in the homebuilding industry is being driven by higher-income households, according to Citi, due to the continued bifurcation of the economy – a phenomenon known as the K-shaped economy. Under those economic conditions, the top 10% of households by income now account for nearly as much discretionary spending as the bottom 70% of earners combined, according to a Bank of America report dated June 30. As a luxury homebuilder, Toll Brothers is well equipped to serve wealthier customers that still have cash to burn, putting it in a position to drive more value to its shares, per Pettinari. “We expect builders to report strength among higher [area structure plan] communities and more affluent homebuyers, favoring TOL’s luxury product,” Pettinari wrote. Citi’s call falls in line with consensus on Wall Street. Of the 19 analysts covering Toll Brothers, 13 have a buy or strong buy rating on the stock, LSEG data shows. Shares have jumped 9% year to date.
