Investors should consider loading up shares of online real estate stock Zillow now as the sector is poised for a rebound in 2024, according to UBS. The firm on Friday initiated coverage of the company with a buy rating and a 12-month $50 price target, implying a 31% upside from where shares currently trade. “We see the current period of maximum uncertainty as a good entry point for Buy-rated Zillow shares for longer-term investors,” wrote analyst Lloyd Walmsley in a note. “A year from now we expect to be looking ahead to a brighter environment, with UBS economists expecting interest rates to be on their way down, easy comparisons, and pent-up housing demand.” The stock rose 1.3% in early trading. Shares of Zillow are down nearly 40% year to date. Housing rebound For Zillow, UBS expects that as the macroeconomic backdrop improves, it will be able to make tangible progress towards its goals and see its valuation multiple re-rate higher. Analysts see this happening in the second half of 2023. Currently, shares price in 16% revenue growth, and UBS forecasts Zillow can grow revenue at 18.5% in 2024 and 15% in 2025. “We think the mortgage funnel is the largest under-appreciated potential driver of Zillow’s goal to double its transaction share from 2021 through 2025, and in an upside scenario we believe this funnel alone could drive those gains,” said Walmsley. There’s also potential for Zillow to grow by improving execution around touring and its premier agent business, according to the note. “Our agent checks also endorse the notion that Zillow can monetize higher transaction volumes, driving healthy top line growth on the other side of the current environment,” Walmsley said. Entry point in uncertainty Of course, the U.S. is facing a potential recession that may hit in the first half of next year and could weigh on the housing sector with higher mortgage rates and lower affordability. However, UBS sees this as “more than priced into shares” for Zillow investors, especially those who have longer-term horizons and expect to hold the stock through a period of heightened uncertainty. This has also given investors a solid entry point to buy shares as they’ve slumped more than the broader market so far this year. “We see the current period of maximum uncertainty as a good entry point for Buy-rated Zillow shares for longer-term investors,” wrote Walmsley.
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