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On Friday, RBC Capital Markets updated its view on Zillow Group (NASDAQ:ZG), raising the price target to $88 from $74 while maintaining an Outperform rating on the stock. The firm's analyst highlighted Zillow's leading position in the digital real estate sector, a challenging industry for internet companies to penetrate successfully. According to InvestingPro data, analyst targets for the stock range from $47 to $95, with the stock showing remarkable momentum, gaining over 50% in the past six months.
In the report, the analyst praised Zillow for its dominance in the category and the company's potential to perform well despite the cyclical nature of the real estate market. Additionally, the potential improvements to Zillow's platform could lead to better monetization opportunities than what investors are currently expecting. The company maintains strong financial health with a current ratio of 3.13 and holds more cash than debt on its balance sheet.
The new price target of $88 is based on a 31.5 times enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple. This valuation reflects the analyst's confidence in Zillow's strong market position, higher than average margins, and the potential for long-term margin growth.
The analyst believes that the premium valuation of Zillow's stock is justified given its market dominance and the potential for margin expansion. The raised price target supports the firm's Outperform rating, indicating the analyst's expectation that Zillow Group will perform better than the overall market in the near future.
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