On Monday, BofA Securities updated its outlook for CoStar Group (NASDAQ:CSGP), a provider of commercial real estate information, analytics, and online marketplaces. The firm raised the price target on CoStar to $111.00 from the previous $97.00, while maintaining a Buy rating on the stock.
The adjustment follows a significant development last Friday when CoStar's shares climbed by 8% against the S&P 500's 1% increase. This surge was a reaction to the news that the National Association of Realtors (NAR) had agreed to a settlement in a series of antitrust lawsuits. As part of the settlement, the NAR will pay $418 million in damages and will abolish its commission rules. This change is anticipated to lower fees for US buyers' agents.
Analysts believe that the resolution of the lawsuits is a positive development for CoStar, particularly for the revenue of Homes.com, its residential division. The settlement is also seen as a validation of CoStar's residential strategy, which had been met with some skepticism.
In light of these events, BofA Securities has revised its forecasts and valuation assumptions for CoStar Group. The firm has increased its 2025 enterprise value to EBITDA (EV/EBITDA) multiple for CoStar's commercial business to 28 times, up from 25.5 times. This change reflects a more optimistic outlook following the firm's 2024 Info & Business Services conference, which suggested potential upside to the 2024 guidance.
Furthermore, the exit multiple in the discounted cash flow (DCF) model for CoStar's residential business has been raised to 26 times from the prior 23 times. This adjustment is based on the increased confidence in the growth trajectory of the residential sector following the NAR settlement.
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