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Leading U.S. homebuilder, Toll Brothers, Inc. (TOL - Analyst Report) recently closed the purchase of the homebuilding business of California-based Shapell Industries, Inc. for $1.6 billion. The acquisition will largely boost Toll Brothers’ presence in the upscale coastal Californian housing market.

Shapell is considered to be one of the largest privately held homebuilding companies in California. Since its launch in 1955, Shapell has built 70,000 homes, a major portion of which are located in wealthy Northern and Southern Californian markets.

Following the acquisition, Toll Brothers will gain control over Shapell's entire land portfolio in California. It will provide the company an additional 5,200 lots and homes for future sales. Nearly 97.5% of these homes are located in the San Francisco Bay area, metro Los Angeles, Orange County and Carlsbad, all of which hold strong growth potential.

Toll Brothers purchased the homebuilding business through debt and equity financing. The company will sell $500 million worth of land to focus on the Californian market. The takeover is viewed as a significant effort by the company to extend its business in the state, which is both affluent and possesses a strong employment base.

Though demand in the homebuilding market is gaining traction, the supply side is still weak. Given its strong liquidity, Toll Brothers has secured some of the most sought after urban locations in the country, where land is scarce and approvals are not easy to obtain.

The company’s solid land position places it well to meet growing demand, thus giving it a competitive edge over peers who are facing land availability constraints. The company expects to deliver 5,100 to 6,100 homes in fiscal 2014, with average prices ranging between $670,000 and $720,000.

Toll Brothers currently carries a Zacks Rank #2 (Buy).

Other stocks in the homebuilding sector worth considering in the homebuilding sector include D. R. Horton Inc. (DHI - Analyst Report), NVR, Inc. (NVR - Snapshot Report) and Standard Pacific Corp. (SPF - Snapshot Report). While D. R. Horton sports a Zacks Rank #1 (Strong Buy), NVR, Inc. and Standard Pacific carry a Zacks Rank #2.

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