On Wednesday, RBC Capital maintained its Outperform rating on CoStar Group (NASDAQ:CSGP) shares with a steady price target of $96.00. The firm anticipates that CoStar's core revenues will align with expectations and maintains its projection for core revenue growth. It is also expected that the decline in core bookings, which saw a significant drop in the second quarter of 2024, will lessen, projecting a 15-20% decrease in the third quarter of 2024.
RBC Capital noted that despite the moderation in Homes.com bookings, which are expected to be around $5 million in the third quarter of 2024, CoStar Group may outperform and elevate its guidance for both EBITDA and EPS. This is attributed to the investments in Homes.com being lower than initially forecasted. The firm suggests that CoStar Group is likely to initiate its fiscal year 2025 spending for Homes.com at levels similar to fiscal year 2024, with potential adjustments based on agent additions.
The analyst at RBC Capital believes that the current consensus estimates for fiscal year 2025 are inflated and that a revision of these estimates could serve as a clearing event. This perspective points to an opportunity for CoStar Group to recalibrate expectations and potentially improve its market position following the adjustment.
CoStar Group, a leading provider of commercial real estate information, analytics, and online marketplaces, has been closely watched by investors as it navigates the dynamics of the real estate market and its online platforms such as Homes.com. The company's ability to adjust its spending and manage its bookings is crucial for its continued growth and profitability.
In other recent news, CoStar Group has experienced a series of noteworthy developments. The company reported a 12% increase in second-quarter revenue, reaching $678 million, primarily due to growth in its Apartments.com and CoStar businesses. In addition, several analyst firms have maintained positive ratings on the company.
BMO Capital, for instance, maintained its Market Perform rating, while Goldman Sachs, Baird, Needham, RBC Capital Markets, and Citi have all reiterated their positive ratings.
Goldman Sachs adjusted its medium-term revenue projections for CoStar's residential segment to approximately $335 million by 2026. This adjustment was based on steady online traffic at Homes.com. Meanwhile, RBC Capital Markets maintained its price target at $96.00, despite a slowdown in bookings at Homes.com.
On the other hand, Citi reaffirmed its Buy rating on CoStar, citing the company's robust commercial real estate performance and potential for growth. These recent developments highlight the resilience of CoStar Group's operations and its ability to navigate market dynamics. The company's balance sheet remains strong with $4.9 billion in cash, and it is expanding its Homes.com sales team to drive further growth.
InvestingPro Insights
CoStar Group's financial metrics and market position offer additional context to RBC Capital's analysis. According to InvestingPro data, the company boasts a market capitalization of $32.06 billion, reflecting its significant presence in the Real Estate Management & Development industry. Despite the anticipated decline in core bookings, CoStar's revenue growth remains positive at 11.99% over the last twelve months, with Q2 2024 showing a similar 11.87% growth rate.
InvestingPro Tips highlight that CoStar holds more cash than debt on its balance sheet, which could provide flexibility as it manages investments in platforms like Homes.com. This financial stability is further supported by the fact that the company's liquid assets exceed its short-term obligations.
However, investors should note that CoStar is trading at high valuation multiples, including a P/E ratio of 150.57 and a high Price / Book multiple. This aligns with RBC Capital's suggestion that current consensus estimates for fiscal year 2025 may be inflated, potentially setting the stage for a market recalibration.
For those seeking a deeper dive into CoStar's financials and prospects, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's strengths and potential challenges in the evolving real estate information landscape.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.