SunTrust Initiates Buy Rating on Redfin and Zillow

SunTrust, Inc. (Ticker Symbol: STI) initiated buy ratings on the real estate brokerage company Redfin (Ticker Symbol: RDFN) and online real estate database company Zillow (Ticker Symbol: ZG) SunTrust’s analysts stated that Redfin has an extremely large addressable market which could result in a “significant growth runway in a fragmented market.”  Regarding Zillow, SunTrust’s analysts said that its growing size could lead to “meaningful”  free cash flow and profit growth in the long term.

Above is the daily chart of Redfin’s stock price.  Redfin’s stock started off in 2018 making a hard reversal lower after a steep run up in the fourth quarter of 2017.  The stock then spend the next six months trading in what is called a bear flag.  Bear flags are formed when a stock creates a series of higher highs and higher lows and they represent consolidation in the market and are usually seen after large and quick moves.  The stock broke out of its bear flag pattern led by a weak earnings release in the third quarter of 2018.  It proceeded to trade low finding support around the $15.00 price level while forming a Double Bottom reversal pattern.  A Double Bottom occurs when the price of an asset reaches a low price, has a small rally, then retests that low failing to break below it.  The pattern is confirmed once it breaks below the high between the two prior lows.  Redfin had a good start to 2019 and the stop was up over 60% at its peak this year.  Currently, the stock is finding some price support near its 200-day Moving Average near $17.78.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 7 analysts offering 12-month price targets, the average price target for Redfin’s stock is $21.00.  According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $33.69.

Above is the daily chart of Zillow’s stock.  The stock started 2018 with a strong rally.  It continued to rally into the end of the second quarter.  During that quarter,  the stock began to top, forming a bearish divergence pattern, as indicated on the chart by the purple circles, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Zillow’s case.  The stock proceeded to sell off the remainder of the year finding price support just below the $28.00 price level.  Zillow had a choppy start to 2019 but found life in the second quarter after a strong earnings release.  The stock is up just over 60% for the year.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 13 analysts offering 12-month price targets, the average price target for Zillow’s stock is $128.50. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $48.79.

Technically, both stocks have been under pressure the past few years and it seems as if SunTrust is making its buy recommendations at what seems to be a decent time.  The Dow Jones broke above 27,000 today for the first time ever, so that could be a sign of good things to come. Investors in the companies should look to Zillow’s earnings release on August 7th for fresh news within the real estate sector.