SunTrust's Bob Peck Cuts Zillow Rating On Valuation

SunTrust’s Bob Peck cut his rating on Zillow Z from Buy to Hold and subsequently caused a 1.26 percent drop in the issue.

Peck was sure to note that he is still very bullish on the stock in the long term, but a 44.3 percent year to date rally has pushed the issue above his price target. “but we lack a catalyst to
take our near term numbers up further at this time. Maintain our $110 target.” Shares of Zillow are currently trading at 11.2 times forward revenue and 55 times forward EBITDA.

Related: Two Analsyt Send Zillow Shares Down

Regarding valuation, Peck writes, “Importantly, for an investor to receive a 15% return from yesterday’s close, would imply a $136 target price, which would indicate higher multiples of 0.3x [EV/ revenue/ growth], 0.7x [EV/ EBITDA/ growth], and 1.4x [EV/ EBITDA/ revenue growth].”

Looking at long term opportunities, Peck commented on 2020 possibilities. “Our centered assumption (Column C) is that the number of homes sold can rise slightly to 5.5m per year (from 5.2m) and the price per home increases to $220 (an increase of ~2% per year from our $200k assumption in 2014). This would generate ~$63b in industry commission, or ~$11.5k of commission per transaction.”