UBS lifts Zillow Group target to $98, maintains Buy rating

Monday - UBS has increased its price target for Zillow Group (NASDAQ:ZG) shares to $98 from the previous target of $90, while keeping a Buy rating on the stock. Currently trading at $77.98, Zillow has shown impressive momentum with a nearly 60% gain over the past six months. Analyst Chris Kuntarich anticipates that the fourth quarter results will likely act as a slight positive influence on future earnings estimates. According to InvestingPro data, four analysts have recently revised their earnings estimates upward, with price targets ranging from $50 to $110. The revised forecast for fiscal year 2025 revenue and EBITDA is now slightly higher at $2.56 billion and $686 million, respectively, compared to the Street's expectations of $2.55 billion in revenue and $662 million in EBITDA. InvestingPro's analysis shows Zillow maintains strong financial health with a current ratio of 3.13, indicating robust liquidity. The company's revenue has been growing steadily, showing a 13% increase in the last twelve months.

The adjusted forecast for year-over-year revenue growth in fiscal year 2025 is 14.2%, which includes a slight deceleration due to the one-time impact of the Follow Up Boss acquisition. This deceleration also accounts for a slower uptake than anticipated for Zillow Showcase. Additionally, the analyst's projections include an expected 5.4% year-over-year growth in Existing Home Sales (EHS) and a 2% appreciation in home prices.

Kuntarich's analysis suggests that on the EBITDA front for fiscal year 2025, Zillow Group might see a margin expansion of 4.6 percentage points. This is partly due to an estimated 2% year-over-year growth in fixed expenses, benefiting from recent restructuring efforts that are expected to save approximately $7 million, as shown in Figure 2 of the report. Variable expenses are projected to remain stable as a percentage of revenue.

In conclusion, with Zillow Group's shares currently trading at approximately 28 times and 20 times fiscal year 2025 and 2026 estimated EBITDA, respectively, UBS believes there is greater potential for upward revisions in estimates to propel the stock price further, rather than relying on an expansion of the earnings multiple. Based on InvestingPro's comprehensive Fair Value analysis, the stock appears to be trading above its Fair Value, with a price-to-book ratio of 4.03. Investors seeking deeper insights into Zillow's valuation metrics and growth potential can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Zillow Group has seen a flurry of activity with significant financial maneuvers and strategic initiatives. The real estate technology company recently completed the redemption of its 1.375% Convertible Senior Notes due in 2026, issuing approximately 4.53 million shares of Class C capital stock to noteholders. This move aligns with Zillow's strong financial position and introduces new equity into its capital structure.

In the wake of recent inflation data, Zillow Group and other real estate-related stocks, including Rocket Companies, experienced significant gains. This positive response in the stock market was driven by the less-than-expected rise in core inflation, reflecting a more optimistic outlook for the industry.

Zillow Group's stock has also been the focus of various analyst updates. Bernstein analysts increased the price target for Zillow Group shares from $60.00 to $65.00, maintaining a Market Perform rating. DA Davidson analysts raised the price target from $75.00 to $80.00, reaffirming a Buy rating. RBC Capital Markets raised the price target to $88 from $74 while maintaining an Outperform rating on Zillow's stock.

Zillow's third-quarter performance showcased a 17% year-over-year revenue increase, reaching $581 million, primarily driven by a 63% surge in mortgage revenue. Despite a net loss of $20 million, the company demonstrated effective cost management, with an EBITDA of $127 million. For the fourth quarter, Zillow projects a 12% year-over-year increase in revenue, anticipating earnings between $525 million and $540 million.

In terms of corporate structure, Zillow announced the promotion of Jun Choo to Chief Operating Officer, overseeing Zillow's for-sale business strategy and operations. Additionally, Zillow expanded its market presence through strategic initiatives, such as the acquisition of Virtual Staging AI and the expansion of its partnership with Realtor.com. These are all recent developments that reflect Zillow's ongoing efforts to refine its services and cater to the evolving needs of its users.

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