Prospects for real estate services companies are getting worse as homes become less affordable, Piper Sandler said, downgrading shares of the online real estate platform Redfin,
Analyst Thomas Champion cut Redfin‘s
rating to Underweight from Overweight. He pointed out that unadjusted sales of existing homes have fallen year over year in six of the past seven months, while interest rates on 30-year mortgages are now solidly above 5% versus 3% at the start of the year.
Redfin’s stock (ticker: RDFN) was down 7.4% to $12.11 following the note on Tuesday. Champion lowered his price target to $11 from $40.
The company didn’t immediately respond to a request for comment.
The analyst also scaled back his forecasts for the real estate services segment in general. He now says transaction volumes will decline 1% this year, compared with a forecast of 8% growth previously. He says commissions will increase by 1%, versus a previous call of 5%. Champion’s view contradicts the consensus view on Wall Street, which is for improving real estate services growth through 2022.
At Redfin specifically, Champion highlighted profitability and execution issues. Just two of the past five years have been profitable in terms of earnings before interest, taxes, depreciation, and amortization, he noted. Champion now expects a $53.4 million loss of in Ebitda in 2022, far worse than the $35.4 million of red ink he had projected. Analysts tracked by FactSet expect a $56 million Ebitda loss in 2022.
“RDFN is only recently fully staffed from an agent perspective after a ~40% headcount reduction in 2Q20,” he said. In addition, he sees risk in the integration of both Bay Equity Home Loans, a mortgage-lending operator, and the rental site operator RentPath. Redfin completed the acquisitions of Bay Equity and RentPath this month and didn’t immediately respond to a request for comment.
Out of 16 analysts tracked by FactSet, 12 rate the stock as Hold, and two are bullish. Champion is the one analyst who rates the stock at the equivalent of Sell.
Write to Karishma Vanjani at [email protected]
Credit: www.marketwatch.com /