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Analysts Doubled Redfin, Yet Stock Price Targets Remain Bearish

February 17, 2023
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Redfin does not have a single bullish analyst among the 17 FactSet surveyed, and the average price target suggests a 24% decline.

Redfin Inc. stock dropped on Friday after the real estate services provider forecast first-quarter losses that were higher than Wall Street anticipated and claimed the housing market recovery has halted due to rising mortgage rates.

However, the business also disclosed fourth-quarter losses that more than doubled, though they were smaller than anticipated, and revenue declines that were less than anticipated, prompting two bearish analysts to increase their price targets for the stock by more than double.

RDFN, -7.16% The stock fell 6.8% in morning trading. After falling 89.0% in 2022 after falling 44.1% in 2021, it has still nearly doubled — up 98.1% — to begin 2023.

Redfin "looks to be on the uptick," according to Wedbush analyst Jay McCanless, who raised his stock price objective from $4 to $8 following the fourth-quarter results. Given "the upward reversal in mortgage rates" that occurred in February, he restated the neutral rating he has held on Redfin since July 2022, at least "for now."

In light of higher valuations for Redfin's real estate competitors, Jason Helfstein of Oppenheimer increased his price target from $3.21 to $7.00, but maintained the underperform rating he's had on the stock since November 2022 because "real estate growth and profitability remain constrained by the uncertain but improving macro[economic] outlook."

Four of the 17 analysts FactSet surveyed are negative, while 13 are neutral. Since November, there hasn't been an analyst who is bullish on Redfin's shares. Since the end of November, the stock has increased 56.7%, while the S&P 500 index SPX, -0.90% has decreased 0.5%.

The company announced late Thursday that its fourth-quarter net loss increased from $28.4 million (or 27 cents per share) in the prior year to $62.1 million (or 57 cents per share).

To $479.7 million, revenue fell by 25.4%.

The $445.3 million in revenue and $1.07 per share per share loss topped the average analyst forecast given by FactSet.

In comparison to the current FactSet loss average of $84.3 million, the business stated it anticipates a net loss for the first quarter of between $116 million and $105 million. Also, the company forecasts revenue of between $307 million and $324 million, which was higher than the $295 million FactSet consensus.

Redfin claimed that all but 19 of the RedfinNow homes—the iBuyer service it shut down in November—had either been sold or have had offers to buy them accepted. The "effective disposal" of the RedfinNow inventory, according to Wedbush's McCanless, supplied the money required to pay down debt and get rid of a "substantial" drag on gross margins.

However, the business reported on Friday that its Homebuyer Demand Index, which tracks inquiries about tours and other services from Redfin agents, decreased 1% from the previous week, the first weekly decrease following a month of growth. The company reported that 6% fewer people applied for home purchase loans as mortgage rates increased as a result of stronger-than-expected inflation figures.

“The relatively disappointing inflation data placed a wet blanket on homebuyers after sub-6% rates kindled a fire under them a few weeks ago,” said Chen Zhao, economics research head at Redfin. "Mortgage rates are unlikely to decline considerably in the next several months," according to the Federal Reserve, since "inflation is dropping too slowly—and the job market and retail sales are too strong—for the Fed to lighten up on interest-rate hikes."

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