BofA resumes CoStar Group coverage with neutral rating

Published 30/05/2025, 12:12
BofA resumes CoStar Group coverage with neutral rating

On Friday, BofA Securities resumed coverage on CoStar Group (NASDAQ:CSGP), a leading provider of information services and online marketplaces for commercial real estate, with a Neutral rating and a price target set at $79.00. Currently trading at $74.07, the stock sits between its 52-week range of $68.26 to $83.68. According to InvestingPro analysis, the company appears to be trading above its Fair Value. The firm’s analyst highlighted CoStar’s position as the top information service provider in the commercial real estate sector and its status as the operator of the largest U.S. listings platform for residential rentals.

The analyst noted that under CEO Andy Florance’s leadership, CoStar has achieved consistent double-digit revenue growth and significant margin expansion, with InvestingPro data showing current revenue growth at 11.28% and an impressive gross profit margin of 79.71%. However, the company’s recent investments in residential portals, totaling over $900 million in 2024 and 2025, have led to a reduction in EBITDA margins. These margins are expected to drop from the mid-30s to the low teens by 2025. InvestingPro subscribers have access to 12 additional key insights about CoStar’s financial health and growth prospects.

According to the analyst, scaling the residential segment profitably presents a challenge and is seen as the primary risk to CoStar’s otherwise solid growth trajectory. The report also mentioned the potential for shareholder pressure following the appointment of three board members proposed by activists. The firm suggests that a material reduction in losses from the residential investments could act as a catalyst for the company’s shares. Notable InvestingPro Tips highlight that CoStar holds more cash than debt and maintains liquid assets exceeding short-term obligations, suggesting financial stability despite current challenges.

BofA Securities’ reinstatement of coverage comes at a time when CoStar is navigating the complexities of expanding its residential real estate portfolio while maintaining its growth and profitability. The company’s strategic decisions moving forward could have significant implications for its financial performance and market valuation.

In other recent news, CoStar Group has announced a definitive agreement to acquire Domain Holdings Australia for A$3.0 billion. This strategic move aims to expand CoStar’s presence in the Australian property market, with Nine Entertainment Co. Holdings Limited, a major shareholder, indicating its support for the acquisition. Additionally, CoStar Group reported a 12% year-over-year revenue growth in the first quarter of 2025, totaling $732 million, although earnings per share fell short of expectations. Needham analysts responded to the earnings report by raising CoStar’s price target to $98, maintaining a Buy rating, while Citizens JMP reaffirmed its Market Outperform rating with an $85 target.

The company’s first-quarter performance was bolstered by the recent acquisition of Matterport (NASDAQ:MTTR), which is expected to contribute significantly to CoStar’s financials. Despite challenges in the commercial real estate market, CoStar’s core businesses, including CoStar Suite and Apartments.com, continued to perform robustly. Analysts noted CoStar’s strategic focus on mergers and acquisitions, such as the potential acquisition of Domain, as a key factor for future growth. CoStar’s guidance for fiscal year 2025 includes projections for increased growth and margins, supported by strategic hiring and sales force expansion efforts. The company’s ongoing expansion and integration initiatives are viewed positively by analysts, who remain optimistic about its long-term potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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