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.
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