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Will This Downgrade Hurt Zillow (Z) Stock Today?

Stocks in this article: Z

NEW YORK (TheStreet) -- Zillow (Z) shares were downgraded to "neutral" from "buy" by analysts at SunTrust Robinson Humphrey, while maintaining a $110 price target.

The firm made a valuation call based on the fact that the stock has surged past the $110 price target SunTrust set for fiscal 2014.

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"While we remain very bullish on the long term prospects for the company and the large total addressable markets it is addressing, we think the market has accounted for some of the opportunity, making the stock expensive in the short term," said analysts at the firm.

Zillow shares are down -1.8% to $115.82 in early trading on Thursday.

TheStreet Ratings team rates ZILLOW INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZILLOW INC (Z) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 67.0% when compared to the same quarter one year ago, falling from -$3.75 million to -$6.26 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, ZILLOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ZILLOW INC's earnings per share declined by 45.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ZILLOW INC swung to a loss, reporting -$0.38 versus $0.19 in the prior year. This year, the market expects an improvement in earnings ($0.30 versus -$0.38).
  • The gross profit margin for ZILLOW INC is currently very high, coming in at 92.64%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -9.44% is in-line with the industry average.
  • Net operating cash flow has significantly increased by 520.57% to $14.21 million when compared to the same quarter last year. In addition, ZILLOW INC has also vastly surpassed the industry average cash flow growth rate of 23.21%.
  • You can view the full analysis from the report here: Z Ratings Report
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