Equity Research Banc of America Securities

United States

Earnings Change June 27, 2005

Homebuilding
TOL: $98.30

Toll Brothers, Inc. B UY

Volatility: High
Raising 2006 Estimate and Target on Delivery Growth and
Margin Expansion 12-Month Target: $113.00
Total Return to Target: 15.0%

♦ Increasing target price and estimates. We are raising our 2006 EPS
estimate to $12.00 (from $11.35). Our target price is now $113.00 (from
Daniel Oppenheim, CFA
(212) 847-5733
$107.00) based on 9.4x estimated 2006 earnings. We continue to rate Toll doppenheim@bofasecurities.com
Buy based on our expectation of upward trending estimates based on
continued margin expansion and strong delivery growth. Michael R. Wood, CFA
(212) 847-5699
michael.r.wood@bofasecurities.com
♦ Strong price appreciation to result in higher margins. We expect gross
margins to rise by over 360 basis points to 32.1% in 2005 and an additional
50 basis points to 32.6% in 2006 due to the higher prices reported in orders
for the first half of 2005, as the average order price increased 12.4% as
compared with 1H/04.
♦ Increased scale to aid margins. We expect gross margins to increase
throughout the year as a result of increased operating efficiencies. We
expect Toll to deliver 8,500 homes in 2005 (up 28.1% from 2004) and that
the greater scale will result in incremental operating efficiencies.
♦ Valuation and Target Price Analysis: Our target price of $113.00 (up from Top Picks
$107.00) is based on a multiple of 9.4x our 2006 EPS estimate of $12.00. Ticker Rating Price Target
DHI B $35.65 $46.00
HOV B $62.26 $74.00

Sector View: We see upside in the homebuilders based on the positive Least Favorites
secular trends and reasonable valuations, which should offset the challenges SPF* N $83.59 $90.00
from modestly rising rates. CTX* N $68.15 $76.00

Sector Price Appreciation Potential (Median of Target Price): 17% B = Buy, N = Neutral, S = Sell, * = New Pick

Company Data FYE Oct 2004 A 2005 E 2006 E

52-Week Range $107-37 EPS
Secular Growth (EPS) 13% Q1 (Jan) $0.62 $1.33 A
Market Cap. $8,326.0 MM Q2 (Apr) 0.89 2.01 A
Avg. Daily Vol. 2,505,182 Q3 (Jul) 1.31 2.38 E
Debt/Cap. (01/05) 42.1% Q4 (Oct) 2.22 3.06 E
Est. Dividend/Yield None Fiscal Year $5.04 $8.77 $12.00
Previous $11.35
FAS 123 Adj.* $4.82 $8.56 $11.78
Index Data Calendar Yr $5.04 $8.77 $12.00
DJIA 10298 P/E 19.5 11.2 8.2
S&P 500 1191 P/E/G 150% 86% 63%
* These estimates adjusted to account for FAS 123, Expensing of Employee Stock Options.

Please see the important disclosures and analyst certification on page 5 of this report. BAS does and
seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
 Banc of America Securities

Earnings Estimates
Non-Adjusted Earnings Estimates
Earnings Estimates Adjusted for FAS 123
FYE Oct 2004 A 2005 E 2006 E 2004 A 2005 E 2006 E
EPS
Q1 (Jan) $0.62 $1.33 A $0.57 $1.27 A
Q2 (Apr) 0.89 2.01 A 0.83 1.95 A
Q3 (Jul) 1.31 2.38 E 1.25 2.32 E
Q4 (Oct) 2.22 3.06 E 2.16 3.00 E
Fiscal Year $5.04 $8.77 $12.00 $4.82 $8.56 $11.78
Calendar Yr $5.04 $8.77 $12.00 $4.82 $8.56 $11.78
P/E 19.5 11.2 8.2 20.4 11.5 8.3
P/E/G 150% 86% 63% 157% 88% 64%

Summary and Investment Conclusion

Order growth likely to remain strong and result in strong delivery growth in 2006.
We expect order growth of 18.3% in the second half of 2005 and 23.9% for the full year.
This is higher than all other companies that we cover (the next highest is Pulte Homes at
16.4% order growth in 2005). We think Toll’s strong land pipeline with 68,000 lots
controlled and its expertise in municipal zoning issues will allow the company to
continue to generate strong community growth and continued order growth. This order
growth should translate into 24.1% delivery growth in 2006 (up from our prior estimate
of 17.4%).

Strong price appreciation to result in higher margins. We expect gross margins to rise
by over 360 basis points to 32.1% in 2005 and an additional 50 basis points to 32.6% in
2006 due to the higher prices reported in orders for the first half of 2005, as the average
order price increased 12.4% compared with 1H/04.

Market presence limits risk. We think that Toll’s modest level of reliance on markets
where affordability is stretched limits the risk in the event of a slowdown in the housing
market. Less that 15% of Toll’s deliveries occur in the twelve markets where
affordability is now more stretched than at any other time in the past 15 years. The
remainder of the homebuilders that we cover average approximately 30% of deliveries in
these stretched markets.

Increased scale to aid margins. We expect gross margins to increase throughout the
year as a result of increased operating efficiencies. We expect Toll to deliver 8,500
homes in 2005 (up 28.1% from 2004) and that the greater scale will result in incremental
operating efficiencies.

Increasing target price and estimates. We are raising our 2006 EPS estimate to $12.00
(from $11.35). Our target price is now $113.00 (from $107.00) based on 9.4x estimated
2006 earnings. We continue to rate Toll Buy based on our expectation of upward
trending estimates based on continued margin expansion and strong delivery growth.

Daniel Oppenheim, CFA (212) 847-5733 1 Toll Brothers, Inc.

Banc of America Securities

Investment Thesis
Toll has a focus on the We rate Toll Brothers Buy with a $113.00 target price. Toll is the fifteenth largest
luxury market and has homebuilder in the country (in terms of number of homes sold in 2004). The company
the longest land supply builds homes in 20 states and 44 markets throughout the country with concentrations in
in the industry the Mid-Atlantic, California, and the Northeast. Toll ranks eleventh in total revenues as a
result of having the highest average price point among large builders of $641,000 in the
most recent quarter. We are confident in our above-consensus estimates for 74% EPS
growth in 2005 and 37% in 2006 and expect the stock to move higher as consensus
estimates move closer to our estimates. In addition, we expect to see improved ROIC and
improved earnings growth as a result of the company’s increased focus on inventory
turnover and capital efficiency by increasing the productivity of its subcontractor base
and greater use of options.

Our 12-month price target of $113.00 implies a total return of 15.0%. Our price
target for Toll Brothers is based on our fiscal 2006 earnings per share estimate of $12.00
and a target multiple of 9.4x, an 18% premium to the target multiple of 8.0x for the
homebuilding industry. The target multiple for the industry is in-line with the average
multiple of 8.0x from 1998-present. Our $113.00 target for Toll Brothers represents a
potential total return of 15.0%.

Toll Brothers, Inc. 2 Daniel Oppenheim, CFA (212) 847-5733

 Banc of America Securities

Toll Brothers Earnings Model

Toll Brothers, Inc.

Annual Financial Results and Projections

10/31/99 10/31/00 10/31/01 10/31/02 10/31/03 10/31/04 10/31/05 10/31/06

(amounts in millions) 1999 2000 2001 2002 2003 2004 2005E 2006E
Revenues
Home sales 1,438 1,763 2,180 2,279 2,731 3,839 5,539 7,361
Land sales 17 39 28 36 27 22 29 43
Equity earnings in unconsolidated entities 0 3 7 2 1 16 12 34
Interest and other 9 9 15 12 16 15 34 32
Total Revenues 1,464 1,814 2,230 2,329 2,775 3,893 5,614 7,470
Costs and expenses
Home sales (1,118) (1,337) (1,602) (1,655) (1,977) (2,747) (3,763) (4,963)
Land sales (13) (30) (21) (26) (18) (16) (21) (21)
Selling, general and administrative (130) (170) (210) (236) (288) (381) (517) (680)
Interest (40) (46) (58) (65) (73) (93) (114) (152)
Expenses related to early retirement of debt 0 0 0 0 (7) (8) 0 0
Total costs and expenses (1,301) (1,583) (1,892) (1,982) (2,364) (3,246) (4,415) (5,817)
Income before income taxes 163 231 338 347 411 647 1,200 1,654
Income taxes (60) (85) (124) (127) (151) (238) (456) (628)
Net income 103 146 214 220 260 409 744 1,025
extraordinary loss (1) 0 0 0 0 0 0 0
Net income after extraordinary loss 102 146 214 220 260 409 744 1,025

Earnings per share - Diluted 1.38 1.95 2.76 2.91 3.44 5.04 8.77 12.00
Weighted average number of shares
Basic 73 73 72 70 71 74 77 77
Diluted 75 75 77 75 76 81 85 85

Fair Value adjustment for stock-based compensation (15) (15) (17)

FAS123r adjusted diluted EPS 2.72 3.25 4.82

Source: Company reports, Banc of America Securities LLC estimates.

Daniel Oppenheim, CFA (212) 847-5733 3 Toll Brothers, Inc.

Banc of America Securities

Toll Brothers, Inc.

Quarterly Financial Results and Projections

1/31/04 4/30/04 7/31/04 10/31/04 1/31/05 4/30/05 7/31/05 10/31/05

(amounts in millions) 1Q 2004A 2Q 2004A 3Q 2004 4Q 2004 1Q 2005 2Q 2005 3Q 2005E 4Q 2005E
Revenues
Home sales 590 814 991 1,444 989 1,226 1,459 1,865
Land sales 6 2 13 2 1 10 13 5
Equity earnings in unconsolidated entities 1 1 6 9 2 3 3 4
Interest and other 2 2 3 8 7 9 8 10
Total Revenues 598 819 1,013 1,463 999 1,248 1,483 1,884
Costs and expenses
Home sales (422) (585) (709) (1,031) (685) (831) (984) (1,262)
Land sales (5) (2) (8) (1) (1) (5) (10) (5)
Selling, general and administrative (77) (90) (104) (111) (107) (116) (133) (161)
Interest (15) (21) (24) (33) (22) (28) (28) (36)
Expenses related to early retirement of debt 0 (8) (0) 0 0 0 0 0
Total costs and expenses (519) (705) (845) (1,176) (815) (980) (1,156) (1,463)
Income before income taxes 79 115 168 286 184 268 327 421
Income taxes (29) (42) (62) (106) (74) (98) (124) (160)
Net income 50 72 106 181 110 170 203 261
extraordinary loss 0 0 0 0 0 0 0 0
Net income after extraordinary loss 50 72 106 181 110 170 203 261

Earnings per share - Diluted 0.62 0.89 1.31 2.22 1.33 2.01 2.38 3.06
Weighted average number of shares
Basic 74 74 74 75 73 77 77 77
Diluted 81 81 81 81 83 85 85 85

Fair Value adjustment for stock-based compensation (4) (5) (5) (5) (5) (5) (5) (5)
FAS123r adjusted diluted EPS 0.57 0.83 1.25 2.16 1.27 1.96 2.32 3.00

Source: Company reports, Banc of America Securities LLC estimates.

Toll Brothers, Inc. 4 Daniel Oppenheim, CFA (212) 847-5733

 Banc of America Securities

REG AC - ANALYST CERTIFICATION

The primary research analyst whose name appears in this research report certifies the following: (1) that all of the views
expressed in this research report accurately reflect his or her personal views about any and all of the subject securities or
issuers; and (2) that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the
specific recommendations or views expressed by the research analyst in this research report.

IMPORTANT DISCLOSURES
Banc of America Securities LLC (BAS) Stock Rating System
The rating system is based on a stock's forward -12-month expected total return (price appreciation plus dividend yield).
The prospective rates of return that help define the Buy, Neutral and Sell ranges are subject to change from time to time,
corresponding with changes in prospective rates of return on competing investments. The specific volatility levels that
divide our stocks into low, medium, high, and extreme ranges are subject to change from time to time, corresponding
with changes in the volatility of benchmark indexes and the companies that comprise them.

Volatility Ratings
Buy Neutral Sell
Low 0%-25% 8%+ 7.9%-(4.9)% (5)% or worse
Medium 25%-35% 11%+ 10.9%-(6.9)% (7)% or worse
High 35%-55% 15%+ 14.9%-(10.9)% (11)% or worse
Extreme 55%+ 30%+ 29.9%-(19.9)% (20)% or worse
Source for volatility: Bloomberg.

Rating Distribution*
Global Coverage
Coverage Universe Companies Pct. Investment Banking Clients Companies Pct.**
Buy 306 38 Buy 252 82
Hold 452 56 Hold 362 80
Sell 52 6 Sell 37 71
Consumer Sector
Coverage Universe Companies Pct. Investment Banking Clients Companies Pct.**
Buy 57 33 Buy 48 84
Hold 104 60 Hold 80 77
Sell 13 7 Sell 10 77
* For the purposes of this Rating Distribution, “Hold” is equivalent to our “Neutral” rating.
** Percentage of companies in each rating group that are investment banking clients.
As of 06/01/2005.

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Daniel Oppenheim, CFA (212) 847-5733 5 Toll Brothers, Inc.

Banc of America Securities

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This company, its subsidiaries and/or its affiliates are (is) or have (has) been a client of BAS in the previous 12 months.
During this period, BAS has performed investment banking services for this company, its subsidiaries and/or its
affiliates and has received compensation for those services: Centex Corporation; D.R. Horton, Inc.; Hovnanian
Enterprises, Inc.; Standard Pacific Corp..
BAS and/or its affiliates expect(s) to receive, or intend(s) to seek, compensation during the next three months for
investment banking services from this company, its subsidiaries and/or its affiliates: Toll Brothers, Inc.; Centex
Corporation; D.R. Horton, Inc.; Hovnanian Enterprises, Inc.; Standard Pacific Corp..
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Toll Brothers, Inc. (TOL)
Target Price, Valuation Method, Risk Factors
Target Price: $113.00
Valuation Method Used To Our target price of $113.00 is based on a multiple of 9.4x our 2006 EPS estimate of
Reach Target Price: $12.00.

Risk Factors:
1 Higher mortgage interest rates could impact housing demand and homebuilders negatively.
2 Lower consumer confidence, higher unemployment or tightened mortgage lending standards could crimp the
ability of Toll Brothers customers to purchase homes.

Toll Brothers, Inc. 6 Daniel Oppenheim, CFA (212) 847-5733

 Banc of America Securities

Hovnanian Enterprises, Inc. (HOV)

Target Price, Valuation Method, Risk Factors
Target Price: $74.00
Valuation Method Used To Our $74.00 target price represents a 8.0x multiple of our calendar 2006 EPS estimate
Reach Target Price: of $9.20.

Risk Factors:
1 Higher mortgage interest rates could negatively impact homebuilding demand and homebuilding stocks.
2 Lower consumer confidence, higher unemployment or tightened mortgage lending standards could crimp the
ability of Hovnanian's customers to purchase homes.

D.R. Horton, Inc. (DHI)

Target Price, Valuation Method, Risk Factors
Target Price: $46.00
Valuation Method Used To Our target price of $46.00 is based on a multiple of 8.6x our calendar 2006 EPS
Reach Target Price: estimate of $5.30.

Risk Factors:
1 Lower consumer confidence, higher unemployment or tightened mortgage lending standards could crimp the
ability of consumers to purchase homes.
2 Higher mortgage interest rates could impact business and homebuilding stocks negatively

Centex Corporation (CTX)

Target Price, Valuation Method, Risk Factors
Target Price: $76.00
Valuation Method Used To Our $76.00 target price represents a 7.2x multiple of our calendar 2006 EPS estimate
Reach Target Price: of $10.52.

Risk Factors:
1 Higher mortgage interest rates could negatively impact homebuilding demand and homebuilding stocks.
2 Lower consumer confidence, higher unemployment or tightened mortgage lending standards could crimp the
ability of Centex's customers to purchase homes.

Standard Pacific Corp. (SPF)

Target Price, Valuation Method, Risk Factors
Target Price: $90.00
Valuation Method Used To Our target price of $90.00 is based on a multiple of 6.8x our 2006 EPS estimate of
Reach Target Price: $13.20.

Risk Factors:
1 Higher mortgage interest rates could negatively impact homebuilding demand and homebuilding stocks.
2 Lower consumer confidence, higher unemployment or tightened mortgage lending standards could crimp the
ability of Standard Pacific's customers to purchase homes.

Daniel Oppenheim, CFA (212) 847-5733 7 Toll Brothers, Inc.

Banc of America Securities

Toll Brothers, Inc. 8 Daniel Oppenheim, CFA (212) 847-5733

 Banc of America Securities

Daniel Oppenheim, CFA (212) 847-5733 9 Toll Brothers, Inc.

Banc of America Securities

Toll Brothers, Inc. 10 Daniel Oppenheim, CFA (212) 847-5733

 Banc of America Securities

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Daniel Oppenheim, CFA (212) 847-5733 11 Toll Brothers, Inc.