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Wedbush analyst Jay McCanless assumed the research coverage of Zillow (NASDAQ:ZG) and upgraded the stock to Outperform from Neutral with a $41 per share price target (up from $37).
The analyst believes that Zillow will be “a consistent share repurchaser over the next six quarters,” which should act as a catalyst for the stock to move higher.
“We anticipate Zillow will be in a net cash position of ~$1.6 billion at F2Q22 after liquidating the majority of owned homes and paying off the associated debt. Zillow repurchased approximately $348 million in stock during F1Q22 and had a total of $1.1 billion in two repurchase authorizations. Our model assumes a more modest quarterly pace of ~$63 million per quarter or 2.5 million shares at current levels,” McCanless said in a research note today.
The analyst also sees the potential for Zillow to potentially gain market share from weaker players in the core IMT (Internet, Media, and Technology) business. In this sector, Zillow generates revenue from the sale of marketing services.
While higher spending levels may not be popular with investors, McCanless says this is the right call.
On the risk side, the analyst expects mortgages to act as a drag in 2022 and 2023.
“We believe the spike in mortgage rates to 6% earlier this year may have slowed purchase demand, at least temporarily,” the analyst concluded.
Zillow shares are modestly up in pre-market Monday.
