A broader market selloff, like the one seen in the S&P 500 earlier this week, triggered by the unwinding of a so-called ‘carry trade’ started in Japan, tends to bring down essentially all stocks regardless of their fundamental picture. Now trading at only 75% of their 52-week high, shares of Zillow Group Inc. (NASDAQ: Z) have become a worthy name for investors to consider during these selloffs.
Far from blindly picking a beaten-down stock, investors can look at the broader picture instead and understand what is making Wall Street analysts and other institutional buyers want to make their bullish views for Zillow stock public today. The bets are off, led by the promise of interest rate cuts before 2024 is over, something the Federal Reserve (the Fed) has yet to announce in its next meeting on September 2024.
Considering that the Vanguard Real Estate ETF (NYSEARCA: VNQ), which represents the market’s sentiment toward the real estate sector, is now attempting to make a new 52-week high, it seems that the market is accepting a more bullish future for all those stocks involved in the property value chain. It turns out that, within this value chain, Zillow stock is among the first businesses to get paid.
Strong Quarterly Results Justify Bullish Outlook for Zillow Stock
Investors can reiterate this view by looking inside Zillow's second quarter 2024 earnings press release and justifying the currently bullish sentiment from the business' main drivers. Starting with revenue, which should tell the market whether the company is actually expanding or contracting, the answer is obvious.
A jump to $572 million represents a jump of 13% over the year, which is far from the characteristic expected from a contracting business. However, revenue is only half the picture; investors need to understand what is behind this growth and where it comes from.
Most of the revenue came from the residential sector, up to $409 million for 8% annual growth. This means that there are rising volumes of residential property transactions and listings, which matches the uptick in U.S. home listings based on Fed data.
That is a good sign for Zillow's potential stock price recovery, but there's more. Zillow's mortgage segment was the fastest growing segment, at 42% over the past 12 months. Most investors will let this piece of data fly by them in the middle of a volatile market. Still, it is a crucial piece of evidence to consider moving forward.
Now that the CME's FedWatch tool fully expects a rate cut by September 2024, lower interest rates will eventually bring lower mortgage rates. So, Zillow has a rising number of listings on its platform, along with lower mortgages ahead, to allow new buyers to come in and enjoy more affordable financing.
For these reasons, leading to a more bullish future ahead for Zillow, management has decided to allocate up to $292 million toward share buybacks at an average $42.34 stock price. More than that, there is still $381 million available for more repurchases in the coming quarter, pushing a clear view for Wall Street forecasts.
Wall Street Predicts Big Gains for Zillow Stock
Currently, analysts expect Zillow to swing from a net loss per share of $0.42 last year to a net earnings per share (EPS) of $0.18 in the next 12 months. This massive swing in profitability is enough to raise the sentiment for Zillow stock and make more participants bullish.
Those at Jefferies Financial Group tagged on this trend, placing a valuation of up to $75 a share for Zillow stock, daring it to rally by as much as 58% from where it trades today. Not only that, this valuation will also call for a new 52-week high on Zillow.
Noticing the rising sentiment and financial momentum in the stock, up to $808.6 million of institutional capital made its way into Zillow stock. Among these buyers, the Vanguard Group decided to boost its stake in the company by 0.8% in the past quarter.
While this may not seem like much on a percentage basis, it increased the asset manager’s investment to $1 billion today or 9.1% ownership in Zillow.
Knowing that the United States Mortgage Market Index is now at a level not seen since 1997, investors can probably project a new uptrend in mortgage demand, driven not only by the rising supply of housing inventory alongside cheaper mortgage rates. These are the tailwinds that can amplify Zillow's recent strong quarter.
