Evercore ISI upgrades Zillow Group, says real estate stock could jump 40% on a 'rapid recovery' in the housing market

Published Mon, Feb 13 20236:43 AM EST

Zillow Group shares could jump more than 40% from here, according to Evercore ISI. Analyst Mark Mahaney upgraded shares to outperform from in line, and nearly doubled his price target, saying investors should buy Zillow ahead of what could be a "rapid recovery" in the housing market. "We are in significant part making a macro call here – that the housing market is either already beginning to recover or will very soon do that," Mahaney wrote in a Sunday note. "But what hedges that risk – or better put, enables more than just a cyclical fundamentals and stock recovery – is a) the ongoing secular migration of residential real estate to Online channels; b) a large $10B+ TAM and a relatively muted 10% market share by Zillow based on our prior published analysis (here); c) a business model that has proven the ability to sustain strikingly high 40%+ EBITDA Margins; and d) a company that has created optionality for itself through both product development and acquisitions," Mahaney added. ZG YTD mountain Zillow shares YTD Zillow shares surged 35% so far in 2023. The stock performed dismally for the better part of the pandemic following dramatic moves in the housing market. Shares fell more than 49% in 2022, and more than 54% in 2021. However, the analyst's $61 price target, raised from $34, suggests the stock can surge another 44% from Friday's close of $42.22. Shares of the online real estate marketplace advanced about 5% in Monday premarket trading. Mahaney expects that home prices could trough in the first quarter, based on the work of fellow Evercore ISI analyst Steven Kim. That would bolster shares of Zillow, which accounts for greater than half of all online real estate related traffic, Evercore found after analyzing third-party web and app data. "As the consistently leading Online Real Estate information/marketing platform for both consumers and real estate agents, we believe Zillow should fully participate in the real estate market recovery," Manahey wrote. —CNBC's Michael Bloom contributed to this report.