Morgan Stanley Downgraded RE/MAX Stock, Price Target Slashed By Over 50% — NAR Ruling Key Risk

Zinger Key Points
  • Morgan Stanley downgraded RE/MAX stock to underweight citing NAR Ruling as key risk.
  • The price target was slashed over 50%.

The stock of real estate brokerage firm RE/MAX Holdings Inc RMAX, short for Real Estate Maximums, was downgraded to underweight on Nov. 6 by Morgan Stanley MS.

The investment bank identified the NAR ruling as a key risk.

“NAR ruling increases risk of further litigation and costly settlements,” said the note. Housing strategists at Morgan Stanley expect 2024 to present a challenging backdrop to the company. Accordingly, the firm re-adjusted its EBITDA and EPS expectations, leading to a $10.50 drop in their price target.

The RMAX Analyst: Morgan Stanley analyst Ronald Kamdem, CFA had a revised price target of $9 with an Underweight rating. The firm used a 6.5x multiple, representing a 6% discount to CRE brokers (at 6.9x) and a 34% discount to RMAX 5-year historical average.

The stock was earlier rated Equal-weight with a price target of $19.50.

The RMAX Takeaways: Morgan Stanley analysts laid out five risks that could weigh down the stock’s multiple:

  • The risk of additional litigation and costly settlement
  • Earnings risk , given RMAX’s direct exposure to broker fees
  • Limited ability to return capital to shareholders
  • 8% mortgage rate remains an ongoing headwind
  • Management transition at a time of ongoing litigation exposes the firm to execution risk

RMAX Price Action: RMAX was trading down 10.19% at $9.70 at publication Tuesday.

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