On Monday, CoStar Group (NASDAQ:CSGP) saw its price target increased to $110 for the shares from $85 by JMP Securities, while the firm retained a Market Outperform rating on the stock. The revision reflects a positive outlook following the National Association of Realtors (NAR) Antitrust Settlement, which is anticipated to lift uncertainties that have been affecting the company's market performance.
The analyst from JMP Securities expressed confidence in CoStar Group's subsidiary, Homes.com, citing the proposed settlement and policy changes as beneficial. The changes are expected to influence listing agents to seek independence from buyer's agents, which could work in favor of Homes.com.
The analyst also highlighted that residential real estate agents typically have sufficient margins to invest in advertising, which is becoming increasingly significant in the online home search and discovery process.
The report further discussed the position of Zillow Group (NASDAQ:ZG), maintaining a Market Outperform rating and a $68 price target. The analyst believes that Zillow's leading role in the residential real estate market positions it well to handle shifts in agent and broker behavior. Despite last week's decline in Zillow's share price, the analyst views the stock as attractive and suggests that the perceived risk associated with Homes.com is diminishing.
The increased price target for CoStar Group is based on an updated weighted average cost of capital (WACC) in a 10-year discounted cash flow (DCF) analysis. This adjustment reflects a more favorable outlook for the monetization model of Homes.com. However, the analyst noted that it is still early to determine the exact impact on revenue growth.
Excluding investments in Homes.com and OnTheMarket, CoStar Group has guided to a profit of $1.1 billion, indicating an enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization (EV/2025 EBITDA) multiple of approximately 35x, which is an increase from the previously estimated 28x.
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