Zillow Group stock jumped Monday following an upgrade from analysts at Wedbush Securities. The gains add to a recent breakout for the real estate technology company, which is still recovering from a deep slump that started three years ago.
In a note to clients Monday, Wedbush analyst Jay McCanless flipped from a neutral to an outperform rating for Zillow. He also raised his price target to 80 from 50.
"In addition to the potentially positive catalyst of lower mortgage rates for Zillow's core brokerage business, we see Zillow's software and services initiatives adding to potential upside risk to our estimates," McCanless wrote Monday.
On the stock market today, Zillow stock is up more than 3% at 62.02 in morning trades. Shares broke out Friday beyond a 58.29 cup-with-handle buy point Friday. Zillow shares have gained 7% this year and 31% in the past 12 months.
Residential Revenue Upside
Zillow stock has been gaining as investor confidence grows about rate cuts from the Federal Reserve. Zillow gained 12% Friday while rival Redfin added 23%.
Average mortgage rates declined to 6.11% as of Sept. 12, Wedbush noted, the lowest rate in more than a year.
Lower rates should provide a positive catalyst, in Wedbush's view. But McCanless also believes that Zillow's sales will be boosted by the broader software and services it provides for the real estate industry.
The software and services revenue is reported within Zillow's residential revenue segment. Wedbush sees the segment growing 17% in 2025, compared to 8.5% projected sales growth this year and a reported 4.6% decline in sales in 2023. Wedbush's 17% growth estimate is well above the average analyst projection of 9.9% residential revenue sales growth for 2025, the note added.
"We believe the (software and services) offerings, along with Zillow's core brokerage revenues, have allowed total revenues to grow faster than the national existing home market for several quarters now," McCanless wrote.
Zillow Stock: Rising Relative Strength
Zillow stock fell into a deep slump late in 2021 that continued through 2022. The company late in 2021 called off an expensive foray into buying and selling homes directly online, or iBuying. Shares struggled further in the down market for tech firms of 2022. Real estate stocks have also struggled amid inflation and rising interest rates. Shares peaked near 208 in February 2021.
But with Monday's gains, Zillow is approaching levels not seen since early 2022. The stock's Relative Strength rating has improved to 86 out of a best-possible 99, according to IBD Stock Checkup. The score indicates Zillow has outperformed 86% of stocks tracked by IBD on a 12-month basis.
In August, Zillow appointed a new Chief Executive in Jeremy Wacksman, who was formerly chief operating officer for the company. For the June-ended quarter, Zillow's adjusted earnings per share were flat while sales increased 13%, to $572 million.
On the positive side, Zillow stock holds an Accumulation/Distribution Rating of A-. That rating analyzes price and volume changes in institutional ownership for a stock over the past 13 weeks. The current rating indicates more buying than selling by institutions.
Overall Zillow stock holds an IBD Composite Rating of 79 out of a best-possible 99. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
