On Friday, Oppenheimer presented a positive outlook for Compass Inc. (NYSE:COMP), increasing the firm's price target to $8.50 from the previous $8.00, while reiterating an Outperform rating for the stock. The adjustment reflects the company's effective cost management and a significant improvement in second-half EBITDA expectations.
Compass Inc. reported third-quarter transactions that outpaced Oppenheimer's own and Wall Street's forecasts by 7% and 5%, respectively. This represents a 16% year-over-year increase, compared to the second quarter's 11% growth. The company's success was attributed to market share gains and the strong performance of higher-priced real estate assets.
Despite rising mortgage rates since the Federal Reserve's 50 basis point cut in September, which has delayed a rebound in the housing market, Compass Inc. is showing signs of strong operating leverage that is becoming apparent to investors.
Looking ahead, the firm is expected to benefit from product tailwinds in fiscal year 2025, including the introduction of Reverse Prospecting, the Compass One client dashboard, and the Make-Me-Sell tool.
Oppenheimer has adjusted its growth forecasts for Compass Inc., now expecting a 7% increase in fiscal year 2025 and a 15% rise in fiscal year 2026 for existing home sales. This is a slight reduction from the previous estimates of 10% and 17% growth, respectively.
The guidance for fourth-quarter revenue is set at 1% and 2% above Oppenheimer and Wall Street estimates, with EBITDA guidance at $23 million and $14 million above expectations.
The raised EBITDA projections for 2024, 2025, and 2026 are up by 4%, 2%, and 2%, respectively. The new price target is based on a 12-times multiple of the estimated fiscal year 2026 EBITDA, a valuation that aligns with peers despite Compass Inc.'s faster growth trajectory.
InvestingPro Insights
Compass Inc.'s recent performance aligns with several key insights from InvestingPro. The company's significant return over the last week (12.59%) and strong return over the last three months (49.06%) reflect the positive market sentiment highlighted in Oppenheimer's report. These metrics, along with the InvestingPro Tip that Compass is "Trading near 52-week high," underscore the company's recent momentum in the market.
The article's focus on Compass's effective cost management and improved EBITDA expectations is particularly relevant when considering the InvestingPro Tip that "Net income is expected to grow this year." This projection supports Oppenheimer's optimistic outlook on the company's financial performance.
However, it's worth noting that Compass "Suffers from weak gross profit margins," with a gross profit margin of 11.78% for the last twelve months as of Q3 2024. This metric provides additional context to the company's financial position and may be an area for investors to monitor as Compass continues its growth trajectory.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Compass Inc., providing a deeper understanding of the company's financial health and market position.
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