Zillow shares are poised to rise on the housing boom, says Bank of America

  • Zillow shares have 20% upside on a potentially improving housing market, Bank of America said Monday.
  • The real estate technology firm was given a double upgrade to a buy rating and a higher price target of $42 per share.
  • BofA sees housing transactions accelerating in 2024.

It’s time to buy shares of Zillow, according to Bank of America, which raised its rating and price outlook for the real estate technology firm as it sees the housing market improving after a difficult 2022.

High interest rates stemming from the Federal Reserve’s fight against decades of high inflation and housing affordability at a 40-year low are making the investment bank cautious about real estate trends in 2023.

“However, the decline in mortgage applications … has stabilized since October, and unless prices pick up significantly, residential volume trends should begin to improve in 2Q23,” research analyst Curtis Nagle wrote in a note published Monday.

BofA issued a double upgrade on Zillow to buy from underperform and raised its price target to $42 per share from $22.

The higher price target suggested a 20% upside from Friday’s close of $34.96. Zillow shares rose 8% on Monday after the investment bank outlined its view on the stock.

BofA projects that 2023 home transactions will fall 21% year-over-year, but then accelerate 10% in 2024 on lower home prices and mortgage rates. Some mean reversion should also help as volumes are 24% below the historical average. Higher transactions can result in at least an 11% gain to Zillow’s revenue.

Zillow is in the “early stages” of implementing several large and potentially key initiatives that could sustainably accelerate growth above the market pace, Nagle wrote.

“Our estimates assume only minimal performance, but assets like ShowingTime, 3D virtual tours and an increased focus on financing to identify high-intent homebuyers could drive higher conversions and revenue,” he said.

Zillow’s long-term goals are “ambitious,” but a 1 percentage point stock gain would boost its 2025 earnings estimate by 45%, BofA said.

In a high-profile move in late 2021, Zillow closed the doors on its Zillow Offers home flip unit. The algorithmic home pricing business lost more than $881 million that year.

Sales of new and existing homes fell and home prices fell across the U.S. last year as the Fed steered interest rates higher, cooling what was a hot market during a period of low mortgage-related borrowing costs. Zillow stock plunged 49.8% in 2022, underperforming the 33% slide in the Nasdaq Composite.

Zillow stock hit an all-time high above $212 in February 2021.

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