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5 Reasons Why You Should Hold Zillow Group in Your Portfolio

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Shares of Zillow Group (ZG - Free Report) , a provider of real estate and home-related brands on the Web and mobile, have been performing well of late.

If you haven’t taken advantage of the share price appreciation yet, its time you hold the stock in your portfolio as it looks promising and is poised to carry the momentum ahead. This Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 5%.

Positive Earnings Surprise History

Zillow Group outpaced the Zacks Consensus Estimate in two of the trailing four quarters, recording an encouraging positive average earnings surprise of 9.5%.

Ahead of the Industry

Zillow Group stock has gained 34.5% year over year, outperforming 6% rally of the industry it belongs to.

Upbeat Q1

Zillow Group delivered non-GAAP earnings of 7 cents per share in the first-quarter of 2018, which came ahead of the Zacks Consensus Estimate by a penny.

Total revenues increased 22% year over year to $299.9 million, surpassing the Zacks Consensus Estimate of $298.96 million.

Strong growth of the company’s Premier Agent Business primarily drove year-over-year revenue growth. New construction marketplaces also aided growth. The company is striving to increase audience size and improve consumer engagement via advertising and other related marketing initiatives.

Strong Guidance

Management expects second-quarter 2018 revenues in the range of $322-$327 million. The Zacks Consensus Estimate is currently pegged at $325.1 million.

Management raised guidance for 2018 due to an anticipated increase in Premier Agent revenues and additional revenue pertaining to adoption of ASC 606. Revenues are now anticipated to be in the range of $1.433-$1.578 billion compared with the earlier range of $1.302-$1.317 billion.

Notes Offering & Strong Balance Sheet

Zillow Group recently announced the pricing of its concurrent underwritten public offerings of approximately 5.702 million shares of Class C capital stock at $57 per share. The company also priced its $325 million in aggregate principal amount of its convertible senior notes due in 2023. The notes carry an interest rate of 1.5%, payable semi-annually.

The company exhibited an impressive cash position in recently reported first-quarter of fiscal 2018. Cash and short-term investments were $822.9 million as of Mar 31, 2018, up from $762.5 million reported in the previous quarter. Moreover, the company generated $258.2 million of cash flow from operational activities in for fiscal 2017. The increasing liquidity and cash flow trend reflects that the company is making investments in the right direction.

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving growth prospects. Moreover, we believe that the senior notes offering will bring down the company’s cost of capital, consequently strengthening its balance sheet and supporting growth.

Bottom Line

The company is working toward growth of emerging marketplaces. Expanding footprint in new cities and cities where the company has a significant market presence, including the likes of Phoenix, Denver, Irvine, Cincinnati, Lincoln Nebraska, will positively impact the top-line, going forward.

The company’s application that allows agents to create 3-D home tours, aiding buyers narrow down their searches before a personal visit, is another positive.

Nevertheless, stiff competition, increasing mortgage interest rates and higher advertising spend are major headwinds. Further, spending in product enhancements is likely to limit margin growth at least in the near term.

Stocks to Consider

Some better-ranked technology stocks include Micron Technology, Inc. (MU - Free Report) , Western Digital Corporation (WDC - Free Report) and Intel Corporation (INTC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron, Western Digital and Intel is currently projected to be 8.2%, 19% and 8.4%, respectively.

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