Two Analysts Send Zillow Shares Down

Zillow Z shares have been volatile in Monday’s trading after RBC and Pacific Crest downgraded the company.

RBC: Downgrade to Sector Perform From Outperform, Maintains $115 price Target

Mark Mahaney of RBC noted that his fundamental analysis of Zillow remains in tact, but shares of the company have hit the price target he previously had in place.

Mahaney states, “Given the steady improvement we have tracked with Z’s fundamentals, we believe this outperformance has been justified. However, with the stock now trading at 48X ’15 EV/EBITDA and 12X ’15 EV/Sales – amongst the highest multiples in the sector – we see valuation upside as limited from here.”

The $115 price target was derived with a combination of a 45 times EV/EBITDA multiple and 13 times price/sales multiple. Mahaney writes, “These premium multiples are warranted in our opinion given our expectations for high growth rates (41% Revenue CAGR and 71% EBITDA CAGR between ’13 and ’16) and are supported by our DCF.”

Related Link: Do The Bulls Have The Edge?

Pacific Crest: Downgrade to Sector Perform From Outperform, Removes Price Target

Pacific Crest’s analysis is similar to that of RBC: the fundamental analysis of Zillow is unchanged, but the recent climb in share price limits upside.

Analyst Chad Bartley writes, “We are downgrading our rating on Z to Sector Perform from Outperform based on valuation, a less-attractive risk/reward profile and limited upside. To be clear, we do not see a negative near-term catalyst for Z, and remain positive on Zillow’s market position, business fundamentals and long-term growth outlook. We also believe some upside is likely in 2H14 and 2015.”

The note further goes on to comment that multiples at the top of the peer range create an unfavorable risk/reward profile.

Shares of Zillow have been bouncing up and down in value Monday and were last trading at $116.20, down 1.54 percent on the day.