Black Friday Sale! Save huge on InvestingProGet up to 60% off

BofA lowers CoStar shares target amid Homes.com sales slowdown

EditorEmilio Ghigini
Published 07/22/2024, 07:17 AM
CSGP
-

On Monday, BofA Securities adjusted its outlook on CoStar Group (NASDAQ:CSGP) shares, a leading provider of commercial real estate information, analytics, and online marketplaces. The firm's analyst has revised the price target downward to $89.00 from the previous $111.00 while sustaining a Buy rating on the stock.

The adjustment comes in the wake of a slower than anticipated sales ramp-up for Homes.com in its first year, which has led to a reduction in the estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS) for the year 2025.

The new estimates stand at $536 million for EBITDA and $1.01 for EPS, marking a 3% and 4% decrease respectively, primarily due to a lower forecast for Residential sales. It is important to note that these figures do not take into account any contributions from Matterport (NASDAQ:MTTR).

Despite the cut in the Residential sales estimate for 2024, the analyst points out that the EBITDA and EPS estimates for that year remain largely unchanged. The revised price objective of $89 is derived from a sum-of-the-parts analysis, which involves separate evaluations of the company's Commercial and Residential segments.

The valuation of CoStar Group's Commercial segment is now based on a 2025 estimated price-to-earnings (P/E) multiple of 24 times, reduced from the prior multiple of 26.5 times.

Meanwhile, the Residential segment's valuation is approached through a discounted cash flow analysis, applying an 11% weighted average cost of capital (WACC) and an 18 times exit multiple, a change from the previous 10.5% WACC and 20 times exit multiple. These revised assumptions are indicative of an expectation for slower near-term growth and a reflection of current cost of capital assumptions.

InvestingPro Insights

As BofA Securities revises its stance on CoStar Group (NASDAQ:CSGP), a deeper dive into the company's financial health through InvestingPro metrics reveals a mixed picture. With a robust market capitalization of $30.39 billion, CoStar stands as a significant entity in the real estate information sector. Despite trading at a high earnings multiple with a P/E ratio recently recorded at 103.27, the company's balance sheet reflects a strength where liquid assets surpass short-term obligations, which can be a reassuring sign for investors concerned about the company's liquidity.

Moreover, CoStar's prominence as a major player in the Real Estate Management & Development industry is underscored by a solid revenue growth of 12.26% over the last twelve months as of Q1 2024. Additionally, analysts expect CoStar to remain profitable this year, which aligns with the company's performance over the last decade, offering a high return to its investors. However, it's worth noting that the company does not pay a dividend to shareholders, a factor that may influence investment decisions depending on individual strategies.

For investors seeking a comprehensive analysis, InvestingPro offers additional insights with a total of 12 InvestingPro Tips, which include considerations such as valuation multiples and free cash flow yield. To delve deeper into these metrics and benefit from the full range of expert tips, users can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.