SunTrust's Peck Upgrades Zillow (Z) to Buy; Cites 6 Key Positives

SunTrust Robinson Humphrey upgraded Zillow (NASDAQ: Z) from Neutral to Buy with a price target of $130.00 (from $110.00).

Analyst Robert Peck commented, "While we have been Neutral on Z throughout its merger process with Trulia, we now believe that expectations have been lowered sufficiently that Z can return to beat & raise type quarters. Further, we think the long-term opportunity from the secular shift of information and discovery online (mobile) and Z's dominant market position are currently being under appreciated by the Street. We think Z can achieve ~$350M in EBITDA in FY2017 and has several long-term drivers. We upgrade our rating to Buy with a price target of $130 (~40% potential upside) based on a 24x multiple our 2017E EBITDA and our Central Tendency of Value Methodology."

Peck cited 6 key positives:

1) Secular shift – growing trend of researching and discovering properties online, enabled by greater information, data and attribution, esp. in the younger generations;

2) Mobile usage increasing – smaller brokers and MLSs will have a tough time justifying continued tech spending to keep up;

3) Dominant position – Z/Trulia combination creates a scale that is unmatched and creates a “must buy” for agent advertisers and a “must be on” for home sellers;

4) Strong ROI – we believe that as the better performing agents get more leads, conversion rate and ROIs will rise, creating significant pricing power for Z;

5) Optionality - around Rentals, mortgages, and digs are underappreciated;

6) Margin leverage – we think the margin profile is misunderstood and can approach levels >45%.

For an analyst ratings summary and ratings history on Zillow click here. For more ratings news on Zillow click here.

Shares of Zillow closed at $92.28 yesterday.

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