Brokerage firm RBC Capital Markets has upgraded Zillow Group's investment rating to outperform from sector perform after its survey of US real-estate agents showed increasing support for the online real-estate business.
RBC also raised its price target on the company’s Class A shares to $34 from $21.
The annual survey of 470 US real-estate agents found that 55 per cent conducted part of their advertising efforts online, down from 2015’s 58 per cent,
The percentage of agents advertising online who used Zillow reached a record high of 38 per cent up from 27 per cent a year ago and 32 per cent in 2014.
In addition, Zillow’s share of agents who spend more than $500 per month in online advertising was 57 per cent, while 62 per cent of those who spent more than $500 per month in online ads said they plan to increase their spending on Zillow.
As a result of the upgrade, Zillow saw a hike to its stock price of 1.14 per cent or $0.26 during the most recent trading session, hitting $23.02.
While Zillow Group Class C shares had declined 7.18 per cent since August 17, and are perceived to be down-trending,
RBC Analyst Mark Mahaney says positive results from the survey, strong recent online traffic trends, insider buying, and attractive valuation, have "sufficiently de-risked." street estimates.
"We value shares of Zillow using a 30x EV/EBITDA multiple on our 2017 estimates to arrive at our $34 price target," Mahaney says.
"We believe Zillow’s outlook for an intrinsically high 42 per cent EBITDA CAGR between 2016 and 2018 justifies this premium multiple."