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Despite dismal Q4 results, Toll Brothers CEO Robert Toll announced on Tuesday that he's seen the bottom of the housing slump and it's in the northern Virginia/metro D.C. area. He also suspected possible stabilization in the Maryland TOL 6 12 06area. Analysts were surprised by Toll's boldness. Ivy Zelman of Credit Suisse: "I'm wondering which Kool-Aid you're drinking because I want some." Q4 company profits dropped 44%, to $173.8 million, or $1.07/share, from $310.3 million, or $1.84/share in 4Q05. Higher mortgage rates and declining demand for second and speculative homes sank new orders by 58%. Despite purchase incentives, new home cancellations remained at 42%. Toll Brothers' FY07 profit forecast was $260 million, or $1.58/share to $340 million, or $2.08/share. FY06 profit was $4.17/share. Company shares climbed $1.12, or 3.5 percent, to $33.03 on Tuesday.
• Sources: BusinessWeek, Bloomberg , MSNBC.com/Financial Times
• Related commentary: Toll Brothers' Single Digit P/E Out the Door, Bursting the Housing Bubble, David Fry's Daily Market Outlook. Conference Call Transcripts: Toll Brothers F4Q06 (Qtr End 10/31/06)
• Potentially impacted stocks and ETFs: Toll Brothers Inc. (TOL) Competitors: Beazer Homes USA Inc. (BZH), Lennar Corporation (LEN), Centex Corp (CTX), KB Home (KBH). ETFs: iShares Dow Jones US Home Construction (ITB), SPDR Homebuilders (XHB), and iShares Dow Jones US Home Construction (ITB) have either TOL or BZH as a top-ten holding.

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Source: Toll Brothers' CEO: Housing Slowdown Is Stabilizing