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Investments

Homebuilders rally on lower interest rates

Toll Brothers soars on hopes it could acquire Shapell Homes

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Homebuilder stocks rallied Friday as jobs data sparked concern that the Federal Reserve's timeline for tapering its bond-buying program might not be as crystal clear as initially expected.

With a lower interest environment, homebuilders ended the day up on the HW 30 index — HousingWire’s exclusive index of stocks impacting the housing economy.

D.R. Horton (DHI), Lennar Corp (LEN) and PHH Corp (PHH) rose 1.86%, 2.28% and 1.76%, respectively.

But the star homebuilding stock on Friday was Toll Brothers (TOL), with it rising 1.13% by market close as shares closed at $30.44.

Investors flocked to Toll Brother's stock among speculation that the company is the finalist in a bidding war for Shapell Homes, a California homebuilder that's expected to sell for roughly $1.5 million.

"Though Toll Brothers is a land-heavy builder, the scarcity of attractive land parcels and increasing housing prices makes an acquisition like Shapell attractive to the company as it can add to its land pipeline with an abundance of lots that overlap well with its existing footprint," explained Susquehanna Financial Group homebuilder analyst John Benda.

California’s recovering housing market is attractive to homebuilders due to higher home prices when compared with the rest of the country largely due to a shortage of buildable land.

"If Toll Brothers were to end up as the successful bidder it would double the company’s gross community count in California," pointed out Sterne Agee analyst Jay McCanless.

"After what I’ve seen of Shapell units, it appears to a very complimentary product to what Toll already does, so it would be a good fit in regards to the quality of land and where it’s placed," McCanless explained.

When taking a closer look at the HW 30 index, Toll outperformed the majority of the stocks Friday, reaching nearly $31 per share for the day.

However, when comparing Toll to other stocks trading on the New York Stock Exchange throughout the week, the company dramatically underperformed, falling below 1%. 

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