Wall Street was more cautious on real estate tech stocks on Monday, ahead of earnings reports later this week, as some analysts cut price targets to reflect worries about housing affordability amid rising interest rates.
Opendoor Technologies Inc. OPEN,
Zillow Group Inc.Z,
and Redfin Corp. RDFN,
all release their first quarter results on Thursday, May 5, after the closing bell.
Although per-share estimates and earnings for the three companies have remained relatively flat in recent months, shares have plunged amid growing investor concerns about how the housing market will adjust to a rate environment. rising.
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BofA Securities analyst Curtis Nagle halved his stock price target for Redfin, to $10 from $20, while slashing his target for Opendoor shares to $6.50 from $8 $.00 and for Zillow at $38 instead of $47. These new targets are all below the level where the shares are currently trading.
Nagle said web traffic trends in advertising and lead generation, brokerage and iBuying were “tepid” in April, leaving the three companies’ stocks as “controversial” in their earnings reports.
“We view weak web traffic as an indicator that home buying demand is slowing, likely due to poor affordability, much higher mortgages and strong volume gains in 2020/21,” wrote Nagle in a note to customers.
And despite the underperformance of equities already this year, it is still bearish as risks to growth and margins remain.
“We continue to see deteriorating housing affordability (due to rising prices and rates) as a strong headwind for volume and transaction growth through 2022,” Nagle wrote.
Shares of Redfin have plunged 70.1% year-to-date, Opendoor has fallen 50.3% and Zillow has fallen 36.8% on Monday afternoon, while the fund traded on the Vanguard Real Estate VNQ stock exchange,
fell 13.8% and the S&P 500 SPX index,
Meanwhile, Wedbush’s Ygal Arounian said it’s hard to see “what’s driving this group forward” in the current rate hike environment, so he cut those targets on Redfin shares to $13 vs. $23, from Opendoor at $11 to $20 and from Zillow at $43. from $60.
“Investor sentiment is materially bearish, and we will likely see downward revisions to estimates at least this quarter and possibly in the quarters to come as well,” Arounian wrote in a research note.
While the outlook for equities is “definitely not rosy” in earnings reports, especially given housing affordability issues, it’s not actually bearish on equities as housing demand still outpaces the offer and as he thinks the shares are already at their worst. case scenarios for the housing sector.
Nagle rates Redfin and Opendoor outperforming and Zillow neutral.
“We are tactically more cautious in the [earnings] and I don’t expect investor sentiment to improve significantly in the near term, but with valuations near COVID lows, I also think equities have outpaced risk factors in the housing market” , Nagle wrote in a research note.
What analysts expect
Here are FactSet’s consensus estimates for select metrics ahead of company earnings reports:
Loss per share of $1.09, compared to a loss of 37 cents a year ago.
Revenues that rose from $268.3 million to $551.4 million, compared to the company’s forecast provided in February of between $535 and $560 million.
Real Estate Services segment revenue of $175.7 million, compared to guidance of between $165 and $171 million.
Revenue from the Properties segment of $330.7 million, which is between $330 and $350 million.
Rental revenue of $37.1 million, versus guidance of $37-38 million.
Redfin has exceeded expectations per share in six of the last seven quarterly reports and has exceeded earnings expectations in the last seven quarters, but the stock fell the day after the last seven reports, by 10.8% on average, according to FactSet. The data.
Loss per share of 17 cents, compared to a loss of 48 cents a year ago.
Revenue of $4.29 billion, matching the company’s February guidance of $4.1 billion and $4.3 billion. The company reported revenue of $747 million a year ago.
In the five quarterly reports since the company went public in June 2020, Opendoor has exceeded per-share expectations three times and exceeded earnings expectations five times. The stock gained twice the next day in profits, by 19.8% on average, and lost three times by 15.3% on average.
Earnings per share of 24 cents, compared to 44 cents a year ago.
Revenue of $3.36 billion, compared to $1.22 billion a year ago.
Internet, Media and Technology (IMT) segment revenue of $490.5 million.
Chief agent revenue of $365.6 million.
Mortgage segment revenue of $47.4 million.
Zillow has exceeded per-share and earnings estimates in seven of the last eight quarters, while the stock has gained five times the day after earnings (average gain of 13.2%) and fallen three times (average loss of 13 ,1%).