Shares of Zillow Group Inc. rose Tuesday into record territory before pulling back, after Susquehanna analyst Shyam Patil upgraded the online real estate information marketplace, in anticipation of an upbeat earnings report due out later this week.
The more-active Class C stock Z, +0.44% climbed as much as 3.3% to an intraday high of $70.20, above the July 30 record close of $69.90, before paring gains to close up 0.4% at $68.24. The Class A stock ZG, +0.50% gained 0.5% to $68.10, but had been up as much as 3.2% intraday at $69.92, above the July 30 closing record of $69.53.
Patil raised his rating on the Class A shares to neutral, after recommending investors sell the stock since November 2018. He nearly doubled his price target to $70 from $39.
“Our checks have indicated that the improving real-estate market continued to benefit Zillow’s [Premier Agent] business,” Patil wrote in a note to clients. “We don’t see the market slowing down meaningfully anytime soon with the pandemic still having a significant influence on buying behavior.”
Among recent housing market data, pending home sales surged 16.6% in June, the homeownership rate soared in the second quarter to the highest level in 12 years, existing home sales soared 20.7% in June and the latest data from Case-Shiller showed that home prices rose 3.7% in May. The upbeat data comes as record-low mortgage rates helped fuel consumer buying interest.
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Zillow is scheduled to report second-quarter results on Thursday, after the closing bell. Analysts surveyed by FactSet expect, on average, losses per share to widen to 48 cents from 14 cents a year ago. Total revenue is expected to rise to $619.4 million from $599.6 million last year, with Premium Agent revenue to fall to $175.7 million from $232.0 million.
Since the end of April, the FactSet consensus for revenue has dropped from $853.4 million and the consensus for Premium Agent revenue has declined from $208.5 million, in the face of upbeat housing market data over the same time.
“The hot real-estate market is leading to elevated [Zillow] lead activity — one check’s July lead count was 20% higher than pre-pandemic levels with the conversion rate holding steady at [approximately] 2%,” Patil wrote. “It appears that whatever supply was created by agents leaving the platform in March and April has been soaked up and price ZIP Code leads are sold out again.”
Zillow had announced in March that it was suspending home buying in all 24 markets where it operates Zillow Offers service, in response to public health orders resulting from the COVID-19 pandemic. The company started resuming home buying in some of its markets in mid-May, and on Tuesday announced the resumption of buying in its final four markets.
Patil wasn’t the only analyst expecting upbeat results. Wedbush’s Ygal Arounian said he expects “upside” to second-quarter results, including Premier Agent revenue given accelerating search activity and a pick up in demand.
“The residential housing market proved to be resilient and is now seeing strength being driven by pent-up demand, but also due to record-low mortgage rates, and an early transition away from home demand in big cities to more affordable outlying areas as work-from-home trend persist,” Arounian wrote.
Meanwhile, he maintained his neutral rating and $58 price target on the Class A shares, which is 14.8% below current levels.
Zillow’s Class C stock has run up 56.5% over the past three months, while the S&P 500 index SPX, +0.36% has gained 16.3%. Among others in the residential real estate services market, shares of Realogy Holdings Corp. RLGY, -0.42% have rocketed 1371%, Redfin Corp. RDFN, +1.63% have soared 108.5% and Re/Max Holdings Inc. RMAX, +1.48% have rallied 34.9%.
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