On Tuesday, Citi reaffirmed its confidence in Zillow Group (NASDAQ:ZG), maintaining a Buy rating and a price target of $68.00. The endorsement comes after a settlement announced by the National Association of Realtors (NAR) on Friday, which alters the way buyer and seller agent commissions are handled. The settlement of $418 million is significant for the real estate industry, as it separates the commissions for buying and selling agents, a change that will take effect in mid-July 2024.
The analyst from Citi believes that this development lifts an uncertainty that has been looming over the industry. Although the rules are yet to be implemented, the expectation is that selling agents may still offer commissions to buyers' agents, but not through the Multiple Listing Service (MLS). This could impact Zillow's Premier Agent (PA) business, yet the analyst notes that Zillow has been reducing its PA base in recent years while focusing on new initiatives.
Zillow has been strategically shifting its business model by launching Enhanced Markets and investing in agent productivity tools. The company is also focusing on generating seller leads with its Listing Showcase, developing its Rentals segment, and integrating Zillow Home Loans (ZHL) into its overall offerings. Despite these efforts, Zillow's shares have experienced a decline of approximately 15% since the NAR settlement was announced, a contrast to the S&P 500's slight increase of 1%.
Citi's analysis suggests that the current dip in Zillow's stock presents a buying opportunity. The firm's reiteration of a Buy rating and a $68 price target indicates a positive outlook for Zillow's stock performance moving forward.
InvestingPro Insights
As Zillow Group (NASDAQ:ZG) navigates through industry changes and shifts in its business strategy, recent data and analyses from InvestingPro provide additional context to the company's financial health and market sentiment. With a focus on the most relevant metrics and insights, here's what investors should consider:
Despite recent share price volatility, with a 14.92% decline over the past week, Zillow's management has demonstrated confidence in the company's future through aggressive share buybacks, an InvestingPro Tip that could signal a belief in undervalued stock. Additionally, the company's balance sheet strength is notable, holding more cash than debt, which is a positive sign for financial stability and flexibility.
From a valuation perspective, Zillow's market capitalization stands at 11.26 billion USD, reflecting the market's current assessment of the company. However, with a negative P/E ratio of -71.76, investors are reminded of the company's recent unprofitability. Nevertheless, analysts contributing to InvestingPro have revised their earnings upwards for the upcoming period, indicating potential for a turnaround in net income.
For those seeking more in-depth analysis, InvestingPro offers a range of additional tips, including expectations for the company to become profitable this year and insights into its liquid assets covering short-term obligations. With 10 more tips available, investors can gain a comprehensive understanding of Zillow's prospects by visiting https://www.investing.com/pro/ZG. To enhance this experience, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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