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Shares of the fintech real-estate marketplace Zillow Group Inc (NASDAQ:Z) spiked 8.58% Monday to $37.96 after a leading bank jumped ahead of the curve, upgrading the stock while saying they expect a trough in the housing market in early 2023.
What Happened: Bank of America research analyst Curtis Nagle upgraded Zillow from an Underperform to a Buy rating, while raising the price target from $22 to $42.
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“While real estate fundamentals remain very challenged given the macroeconomic environment and rates pressure, we believe the market may trough in early 2023 and are more confident that growth can return to double-digits in 2024 on improving affordability,” Nagle wrote in a note to investors Monday.
“Zillow is implementing several important growth initiatives that could drive share gains, and given a highly leverageable expense base, we estimate adjusted EBITDA could nearly double from 2023 to 2025.”
Read also: Why This Housing Downturn Isn't Like 2008
The online real-estate marketplace is renewing its focus on financing to identify high-intent home buyers, which could lead to higher conversions and revenues, Nagle said. The company is also working on ways to revamp virtual tours, by investing in assets such as ShowingTime, which it intends to roll out nationwide soon, the analyst noted.
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Bank of America, in its note Monday, said it expects housing transactions to decline 21.3% year over year in 2023, against the 8.1% drop in 2022 as a high rate environment keeps those would-be buyers on the sideline.
The bank said unless mortgage rates materially spike from the current 6.52%, home volume trends should start to improve in the second-quarter of this year.
Risks To Investment: The Bank of America analyst provided five cases in which risk is added to Zillow’s upgrade.
- Higher rates and a potential recession could delay a housing recovery
- Zillow’s growth initiatives may take longer or cost more than expected before results are apparent
- Real estate data & analytics provider Costar is building a residential marketplace that could over time compete with Zillow
- Consensus revenues and earnings appear high and negative revisions could weigh on Zillow shares
- The large variance in Zillow’s GAAP and non-GAAP earnings may limit multiple appreciation
Price Action: Shares of Zillow gained 8.58% Monday to trade at $37.96, according to data from Benzinga Pro.
To read about the latest developments in the industry, check out Benzinga's real estate home page.
Photo: courtesy of Shutterstock.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.