On Thursday, Citi reaffirmed its Buy rating on shares of CoStar Group (NASDAQ:CSGP), maintaining a $97.00 price target for the company's stocks. The firm's analysis suggests that the recent decline in CoStar's Homes segment member and unique visitor growth has already been factored into the stock price. Citi anticipates a possible decrease in the fiscal year 2024 Homes revenue and exit run-rate forecasts. However, the firm is looking forward to the company's guidance on future strategies.
The perceived slowdown in growth is attributed to two main factors: the real estate agents' learning curve in adapting to a new lead generation model and CoStar's institutional sales team adjusting to a different type of client.
Citi believes these challenges can be overcome but will necessitate a degree of investor patience as CoStar proves the return on investment (ROI) of its Homes segment and solidifies its value proposition. This process will involve building up a dedicated Homes salesforce.
In the interim, as investors wait for the Homes segment to gain traction, they are reassessing CoStar's core commercial real estate (CRE) services such as Suite, LoopNet, and Ten-X. There is optimism that a potential shift in Federal Reserve policy could lead to a rebound in growth for these services, driven by an improving transactions market.
Citi's outlook suggests that despite the current market volatility, the firm views the present stock price levels as an opportunity for long-term investment. The company's efforts to address the growth challenges in its Homes segment and the potential for recovery in its CRE business are key factors in Citi's evaluation.
In other recent news, CoStar Group has been the center of several developments. The company's second-quarter 2024 earnings report is highly anticipated, with investor concerns revolving around potential revisions to Homes.com's revenue guidance, the current state of the core commercial business, and the feasibility of the company's financial targets for fiscal year 2027, as highlighted by BTIG.
RBC Capital maintains an outperform rating on CoStar Group, forecasting bookings for Homes.com between $25 million and $30 million for the second quarter of 2024. Despite potential downward revisions in residential revenue expectations due to slower membership growth, RBC Capital remains optimistic about the company's adjusted EBITDA and EPS for fiscal year 2024.
Goldman Sachs (NYSE:GS) has reaffirmed its buy rating on CoStar Group, citing a significant 63% increase in monthly unique visitors on Homes.com. The firm anticipates CoStar's investments in sales, marketing, content, and technology will fuel residential revenue growth from $46 million in 2023 to between $700 million and $1 billion by 2027.
On the hospitality front, CoStar has reported a dip in U.S. hotel demand, particularly from lower-income travelers, leading to an industry forecast revision. The firm now expects average daily room rates to increase by 2.1% this year, with RevPAR forecasted to grow by 2% in 2024.
Finally, Wall Street analysts, including those from RBC Capital and BMO Capital, have maintained a positive outlook on CoStar, with RBC retaining an "Outperform" rating and a price target of $109.00, and BMO raising its price target to $88.00 from $84.00.
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