NEW YORK -(Dow Jones)- Homebuilding stocks were the second biggest gainers among 100 sectors of the Dow Jones indexes Tuesday after luxury builder Toll Brothers Inc. (NYSE:TOL) (TOL) reported seeing signs of an end to the slowdown in certain housing markets.
Toll, while releasing its fiscal fourth quarter results, said metro D.C. suburban markets in northern Virginia and Maryland appear to be stabilizing.
"Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above," said Chairman and Chief Executive Robert Toll, in a statement.
The comment came as welcome news for industry experts who have been desperately searching for any signs that the industry may be turning a corner.
UBS analyst Margaret Whelan noted that the D.C. market led the industry into the downturn. "D.C. was one of the first markets to slow, so it's not entirely surprising that they would be one of the first to see a recovery," she said. Bank of America analyst Daniel Oppenheim said Toll's comments about certain Washington-area markets stabilizing is consistent with improving trends he's noticed, which prompted him to shift his stance on home builders to neutral from negative last week.
In his upgrade note last week, he said increasing traffic, improving affordability and a reduction in new construction had made him more bullish on the sector, although he cautioned that he does not believe the industry is "out of the woods" yet.
Oppenheim does not hold shares in Toll, but his firm has had an investment banking relationship with the company in the past 12 months. Whelan does not hold shares in Toll, and her firm has not had an investment banking relationship with the company in the past year.
Homebuilders were up across the board Tuesday, with Toll rising 3.4%, Beazer Homes USA (NYSE:BZH) (BZH) up 3.5%, D.R. Horton (NYSE:DHI) (DHI) ticking up 2.4%, Standard Pacific Corp. (NYSE:SPF) (SPF) rising 3.6%, Hovnanian Enterprises (NYSE:HOV) (HOV) climbing 2.4%, Lennar Corp. (NYSE:LEN) (LEN) rising 2.5%, Meritage Homes (NYSE:MTH) (MTH) increasing 2.2%, and Cavalier Homes (AMEX:CAV) ( CAV) ticking up 4.7%.
Despite the optimistic comments, Toll still posted a 44% earnings decline, a 56% fall in orders and $115 million in land-related writedowns in its fiscal quarter that ended Oct. 31. Whelan expects other builders to post similar earnings declines and land writedowns. She sees land writedowns peaking in the fourth quarter and improving in 2007.
- Janet Morrissey; Dow Jones Newswires; 201-938-2118
(END) Dow Jones Newswires 12-05-06 1117 Copyright (c) 2006 Dow Jones & Company, Inc.
