Zillow Group stock experienced a notable boost on Tuesday after an analyst at Piper Sandler upgraded the homebuying app’s shares, citing optimism about the housing market’s future.
Piper Sandler analyst Thomas Champion raised Zillow stock (ticker: Z) from Neutral to Overweight on Tuesday. In addition to the upgrade, Champion also increased the price target for the stock from $42 to $62. This adjustment implies a potential upside of over 20% from the current market price. As of Tuesday trading, Zillow stock is up 6% at $50.76, having achieved a year-to-date gain of 57%.
Alongside the ratings upgrade, Champion also raised his estimates for Zillow’s revenue, gross profit, and earnings before interest, taxes, depreciation, and amortization throughout the years leading up to 2024.
In a detailed research report, Champion commented, “We believe that Zillow is well-positioned for future growth due to three main factors: (1) consistent Premier Agent share gains, (2) product optionality and new initiatives, and (3) an anticipated rebound in the housing market with sustained improvements up until 2024.” Premier Agent is Zillow’s platform that provides support through a network of trusted real estate professionals.
Champion highlighted a significant point about Zillow’s current stock valuation. He observed that its shares presently trade at approximately a 25% discount compared to the period between 2015 and 2018, based on enterprise value/next-12-months Ebitda.
Furthermore, Champion expressed confidence in the recovery of the housing industry. Higher housing costs and mortgage rates have led to a decline in existing-home sales. In May, sales of pre-owned homes reached a seasonally adjusted annual rate of 4.3 million, which is around 20% lower than the previous year. The reluctance of buyers to commit to high mortgages and the desire of sellers to retain lower rates have contributed to this decline.
However, Champion believes that the situation is set to improve. He stated, “While mortgage rates remain higher than those of last year, they have stabilized at current levels, which should drive demand.” According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 6.81% as of July 6.
Champion went on to say, “Fannie Mae’s estimate for existing-home sales in 2024 is projected at 4.3 million, which is approximately 20% below the historical average. Nevertheless, we anticipate that existing-home sales will surpass this estimate.”