12:00 PM EDT, 08/13/2024 (MT Newswires) -- Toll Brothers ( TOL ) has increased incentives for prospective homebuyers, suggesting that softness in demand could make spec homes slated to be sold in August and September more difficult to sell, Oppenheimer said in a note Tuesday.

"The risk in our view is the spec homes expected to be sold in August/September," Oppenheimer said, adding that this could negatively impact Q4 closings and gross margins.

The company is now offering a 5.43% annual percentage rate on select homes, down from 5.80% earlier this month and 5.55% a year ago. "We are surprised by the swift change only one week into August, something not observed previously," Oppenheimer said.

Toll Brothers' ( TOL ) management expects 1,500 spec units to sell in late summer and early fall, with a Q4 gross margin forecast of 27.4% factoring in higher incentives, Oppenheimer said. "Recent incentive activity and less buyer urgency combined with substantial new home inventory available are risks for this outlook," it added.

Toll Brothers' ( TOL ) plan to double stock buybacks next year, and its shift to more spec inventory could boost long-term returns, Oppenheimer said.

Oppenheimer has an outperform rating on Toll Brothers ( TOL ) with a price target of $157.

Price: 128.35, Change: +0.69, Percent Change: +0.54