Zillow Group upgraded as initiatives expected to push growth above the market

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By Sam Boughedda

Zillow Group, Inc. (NASDAQ:ZG) (NASDAQ:Z) was double upgraded to Buy from Underperform, with its price target raised to $42 from $22 per share by BofA analysts on Monday, pushing its shares higher.

They told investors in a note that the firm is upgrading the stock based on an improved growth outlook, the fact they expect the housing market to return to growth in 2024, and initiatives pushing the company's growth back above the market.

Zillow's share price is up 8.9% at the time of writing, adding to strong gains made already in 2023.

"While real estate fundamentals remain very challenged given the macroeconomic environment and rates pressure, we believe the market may trough in early 2023 and are more confident that growth can return to double-digits in 2024 on improving affordability," wrote the analysts.

"Declines for mortgage purchase applications (a leading home sale indicator) have stabilized since Oct., and unless rates materially spike, home volume trends should start to improve in 2Q23," the analysts added. "We forecast that home transactions will accelerate to 10% in 2024 (+11% for ZG revenues) on lower home prices and mortgage rates as well as some mean reversion as volumes are 24% below the historical average."

Furthermore, they explained that Zillow is in the early stages of implementing "several large and potentially important" initiatives that could sustainably reaccelerate growth above the market pace.

"Our estimates only assume minimal outperformance, but assets such as ShowingTime, 3D virtual tours and an increased focus on financing to identify high intent home buyers could lead to higher conversions and revenue. We see management's LT targets as ambitious, but a 1ppt share gain would increase our 2025 revenue estimate by 45%," argues the analysts.