Buy Zillow to Play Surge in Interest in Home Buying, Analysts Say

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Zillow Group
shares got a boost Monday from a pair of bullish Wall Street analyst notes as the economy begins to reopen and the housing market springs to life.

Judging by Zillow’s (ticker: Z) stock price, the market has been anticipating a recovery for a while now. Zillow shares have rallied 34% for the year to date, but bulls see more room for the stock to run.

Needham analyst Brad Erickson on Monday raised his rating on Zillow shares to Buy from Hold, setting an $80 price target. Erickson thinks Covid’s impact on the real-estate market provides “under-appreciated longer term benefits for the company,” noting that recent checks with real-estate agents are “coming back surprisingly positive.” In short, he thinks people are going to be increasingly willing to engage in real-estate interactions via Zillow, as part of a general higher level of comfort with e-commerce.

“Historically, buyers have represented the vast majority of Zillow’s leads whereas sellers are simply a lot more hesitant to engage with a realtor through the internet,” he wrote. “As millions of potential buyers have been forced to work-from-home and shelter-in-place through this period, with everything from broader e-commerce to food delivery or even home renovation, we think multiple generations of consumers have been propelled to an initially forced, but ultimately higher comfort level for engaging with a variety of digital commerce platforms for the first time.”

Erickson also thinks Zillow could benefit from potential deurbanization as more people consider leaving cities for less dense areas. And he thinks that Zillow Offers—the company’s program for buying and flipping individual homes—“is going to re-ramp up and unit economics will improve.” He says that over time, the program will report higher numbers and high profit quality.

Meanwhile, Deutsche Bank’s Lloyd Walmsley issued a short-term “catalyst call” Buy recommendation on Zillow.

“We see a sharp recovery in home shopping and transactions driving lower-than-expected discounting at Zillow in the second quarter, better agent retention, and upside to premier agent revenue in the second quarter and in the outlook,” he wrote. Walmsley noted that Zillow CEO Rich Barton said in a recent CNBC appearance that traffic to homes for sale on the site was up 50% year over year. And the analyst said “recent conversations with real-estate agents as well as mortgage applications also highlight the sharp pace of the recovery.”

Walmsley said, “With about 16% of [outstanding] shares [sold] short, we see potential for the stock to squeeze higher on a positive update.”

Zillow on Monday closed 5% higher at $62.26.

Write to Eric J. Savitz at