BofA Securities analysts downgraded Zillow Group (NASDAQ:ZG) from Buy to Neutral, adjusting the price target to $60.00 from the earlier $47.00. As a consequence, shares dropped nearly 2% today.
The bank explained the downgrade by noting that the stock’s current pricing seems to anticipate a steady housing market recovery in 2024, as indicated by its over 40% year-over-year increase. However, concerns arise from the near-record low home affordability, which could limit volume growth, even with lower rates.
Additionally, ongoing real estate commission lawsuits present a challenge to Zillow Group’s buy-side agent lead generation segment, which accounts for nearly half of its revenue. While a Q4/23 beat is expected due to improved home volumes, and revenue forecasts for 2024 align with market expectations, there is a perceived risk to EBITDA.