Toll Brothers Leads Homebuilders Higher - TheStreet

HORSHAM, Penn. (

TheStreet

) --

Toll Brothers

(TOL) - Get Report

booked strong order growth and improved margins, narrowing its quarterly losses with better-than-expected results, leading stocks in the homebuilder sector higher on Wednesday.

The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The

iShares Dow Jones U.S. Home Construction

(ITB) - Get Report

ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

>> 10 Top Buy-Rated Real Estate Stocks for 2011

The ETFs were 0.7% and 1.6% higher, respectively, Wednesday morning.

Toll Brothers shares rose 4.3% to $21.15, following the release of its quarterly report.

>> Toll's Loss in Second Quarter Narrows

Elsewhere in the sector,

Lennar

(LEN) - Get Report

gained 2.9% to $18.24,

PulteGroup

(PHM) - Get Report

added 1.5% to $7.58,

D.R. Horton

(DHI) - Get Report

pushed 1.8% higher to $11.68 and

KB Home

(KBH) - Get Report

rose 1.6% to $11.47.

Beazer Homes

(BZH) - Get Report

bucked the trend, falling 0.3% to $3.59.

Stifel Nicolaus analyst Michael Widner noted that Toll Brother's "headline results were dragged down by $32.5M (13 cents per share after taxes) of impairment and other charges," though excluding those charges "earnings would have been roughly breakeven."

The analyst expected Toll Brothers to book declines in order growth and gross margin, and said that year-over-year improvement on those line items were "very solid relative to industry trends that were clearly weaker."

Toll Brothers booked 7% order growth and improved gross margins by 50 basis points to 17.6%.

Despite improvements, Widner maintained a sell rating and $18 fair value estimate on Toll Brothers shares, noting that the builder's valuation "still appears rich to us."

Standard & Poor's homebuilders analyst Ken Leon was more bullish, maintaining a buy rating and $24 price target on Toll Brothers' stock, though he lowered his fiscal 2011 and 2012 earnings-per-share estimates by 25 cents and 15 cents, respectively.

Data released on Tuesday showed that

sales of newly built homes rose 7.3% in April to a seasonally adjusted annual rate of 323,000, a bigger jump than expected.

>> Housing Market to Recover in 2013: Analyst1

The Commerce Department report noted that April's new-home sales figure remained 23.1% below year-earlier levels, when

buyers rushed to take advantage of federal tax credits for homebuyers.

Data released last week showed that

April housing starts dropped 10.6% while construction permits fell 4%. The figures were discouraging since building permits are viewed as an indication of future home construction.

The National Association of Home Builders' index of builder sentiment came in flat in May, month-over-month, despite a rise in home sales, as interest among potential buyers remained sluggish.

The NAHB's confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, held steady at a reading of 16, according to the report. Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

"Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

"In addition, many builders in this month's survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase."

-- Written by Miriam Marcus Reimer in New York.

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