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Toll Brothers Gains on Return to Profits

Shares of Toll Brothers surged Wednesday after the homebuilder posted a quarterly profit for the first time since 2007.



) -- Shares of

Toll Brothers

(TOL) - Get Toll Brothers Inc. Report

surged Wednesday after the luxury homebuilder returned to profitability for the first time since 2007.

The stock rose nearly 6% to close at $17.13. Volume of 8.9 million was more than double the issue's trailing three-month daily average of 3.4 million. Year-to-date, however, the shares are still down 14%, and they've declined almost 28% since hitting a 52-week high of $23.67 on April 23.

Before the opening bell, Toll Brothers reported third-quarter earnings of $27.3 million, or 16 cents per share, thanks largely to favorable tax benefits. In the same period a year earlier, the company lost $472.3 million, or $2.93 per share.

The latest quarter included pretax write-downs of $12.5 million and a tax benefit of $26.5 million. A year earlier, pretax write-downs were $115 million.

Revenue came in at $454.2 million for the three months ended in July, down from $461.8 million last year.

The average estimate of analysts polled by

Thomson Reuters

was for a loss of 14 cents a share in the July quarter on revenue of $393.4 million.

Citi analyst Josh Levin described Toll Brothers as "modestly profitable" in the quarter.

"If you're not losing money anymore

in the homebuilding sector that's a good thing," he said in an appearance on

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. The analyst has had a buy rating on Toll Brothers' shares since October of last year.

Levin advised going long on the homebuilders, pointing out that stocks in the sector are at the low end of their valuation right now. He sees headline risk abating over the next few months.

His top picks in the sector were

Beazer Homes

(BZH) - Get Beazer Homes USA Inc. Report



(PHM) - Get PulteGroup Inc. Report


>>Beazer Homes: Hard Times Ahead

Levin added that investors have already priced in further deterioration of the housing market so that even a small uptick -- which he views a likely scenario in the next few months -- could bring substantial gains for savvy traders.

Toll Brothers' quarterly performance was especially impressive in light of all the far-from-stellar reads on the state of the U.S. housing market of late. Data released this week showed

new-home sales fell 12.4% in July

to a new record-low rate, while

existing-home sales plummeted 27.2%

last month. Both sets of data came in far worse than expected.

Record-low and near-record-low

mortgage rates

have failed to spark demand for new homes in recent months, but clearly had an effect on homeowners looking to lower their monthly payments through refinancing.

Mortgage applications rose 4.9% last week

, but refi applications accounted for 82.4% of all applications, up from

81.4% in the prior week

, and the highest share observed since January 2009.

New home deliveries rose 1% to 803 units. The company's contract cancellation rate was 6.2% in the quarter, down from 8.5% in its third fiscal quarter last year.

Toll Brothers said it expects fourth-quarter revenue to be lower year-over-year.

Beazer added 4.9% and PulteGroup gained 3.1% on Wednesday while the

SPDR S&P Homebuilders

(XHB) - Get SPDR S&P Homebuilders ETF Report


iShares Dow Jones US Home Construction

(ITB) - Get iShares U.S. Home Construction ETF Report

, exchange-traded funds that track the homebuilder sector and count Toll and Pulte among their top holdings, rose 3.2% and 3.1%, respectively.

-- Written by Miriam Marcus Reimer in New York.

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Miriam Reimer


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>>New-Home Sales: Winners & Losers

>>Mortgage Applications Rise on Refi

>>New-Home Sales Fall 12.4% in July

>>Existing-Home Sales: Winners & Losers

>>Existing Home Sales Fall 27.2%

>>We Need Another Homebuyer Tax Credit, Poll Says

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.