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4 Stocks Poised to Benefit from Digitalization in Real Estate

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·7 min read
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Technology has streamlined real estate processes involving property zoning, complex contractual terms, filing of affidavits and compliance inspections.

Digitalization of real estate market has ushered in a new era of enhanced websites, products, and mobile apps known by the terms — “PropTech” (property technology) or “RETech” (real estate technology) — which are aimed at modernizing and easing the clumsy process of surfing, buying, and building real estate.

Coronavirus crisis has brought about huge change in the real estate landscape. With companies embracing work-from-home model for the longer haul, employees are now prioritizing spacious accommodations with more home amenities and home offices over traditional preference for closer proximity to office locations. This is resulting in shift from city centers to suburbs and other low-density areas or tier-II cities.

Moreover, office locations are likely to give way to more coworking space culture on democratization of vaccines as employees get categorized into permanent work-from-home, flexible, or permanent work-from-office.

Online courses and degree education are also likely to bring a shift in hostel culture. Globalization and coronavirus crisis induced digital transformation has triggered new prospects for companies engaged in providing advanced real estate platforms. In the post-COVID world, emphasis is on smart building technology, effective space management, and advanced architecture.

Green Signals Ahead

Housing sector was shielded from the brunt of coronavirus triggered business volatility courtesy of low mortgage rates, which increased borrowing power and fueled home buying, and even contributed to economic recovery.

Although recent rise in mortgage rates raises concern; easing business restrictions amid reopening of economies, falling coronavirus infection rates and accelerated vaccine distribution from multiple makers raise optimism.

In fact, the recent releases of upbeat data from the U.S. housing market highlight the sector’s strength. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for newly-built single-family homes came in at 84 in February, 2021 in comparison to 83 in January, 2021 and 30 in April, 2020 (the lowest since June 2012). Notably, any reading above 50 is considered positive and signals at improving confidence.

Growing market interest in technology driven real estate platforms can also be ascertained by two notable M&A agreements in recent times.

Firstly, acquisition of RealPage, Inc. RP, a prominent provider of software and data analytics to the real estate industry, by Thoma Bravo, a leading private equity investment firm, in an all-cash transaction worth $10.2 billion, including net debt.

Secondly, CoreLogic CLGX, a leading provider of global property information, analytics and data-enabled solutions, inked a merger agreement under which funds managed by Stone Point Capital and Insight Partners will acquire all outstanding shares of CoreLogic for $80 per share in cash, representing an equity value of approximately $6.0 billion and a premium of 51% to CoreLogic’s unaffected share price on Jun 25, 2020. The company was also approached by CoStar Group, Inc. CSGP for acquisition post the development. However, the offer was later withdrawn.

Looking ahead, the real estate technology market is likely to show further strength. With the Congress enacting a $1.9 trillion relief package under the Biden administration, and millions of Americans receiving direct payments of up to $1,400, the scenario is likely to improve further.

One-Year Price Performance

4 Stocks Well-Positioned to Gain

Zillow Group ZG is well-poised to gain from higher demand for residential real estate. Robust demand for Zillow Offers is likely to drive performance in the Homes segment in the days ahead. It is now enabling home buying and selling across 25 markets through Zillow Offers service.

The company is relying on its 3D virtual tour capabilities and virtual consultations from its Premier Agents to boost audience size amid the COVID-19 crisis. For instance, Zillow Group Home Capture App aims at bringing 3D Homes imaging technology for-sale and for-rent listings. Notably, the app is gaining traction due to the current social distancing trends stemming from the ongoing COVID-19 pandemic.

In fact, the company recently announced the buyout of ShowingTime for $500 million. Notably, ShowingTime is an online scheduling platform for virtual home tours. Virtual home tours have been gaining significant traction amid COVID-19 crisis. The acquisition will help Zillow Group boost its online home touring capabilities.

Moreover, Zillow Group, currently carrying a Zacks Rank #3 (Hold), constantly adds new features to bolster experience for property managers and consumers. Furthermore, the company’s expanded relationship with some prominent brokers such as Realogy, City Habitats and Sotheby's favored its top line. We believe that strong traffic growth, frequent product launches and growing Agent business are catalysts.

The Zacks Consensus Estimate for its 2021 earnings has moved up 109.3% to 90 cents per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strobg Buy) stocks here.

Redfin Corporation RDFN operates an online real estate marketplace and provides real estate services, including assisting individuals in the purchase or sell of home.

The residential real estate brokerage company also provides title and settlement services; originates and sells mortgages; and buys and sells homes.

Moreover, synergies from acquisition of RentPath (www.rentpath.com), the Atlanta-based owner of ApartmentGuide.com, Rent.com, and Rentals.com, for $608 million in cash, augurs well. The buyout is expected to complement the leading site for buying a home with a robust site for renting a home, giving all a comprehensive view of strategic options.

The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2021 earnings has been revised upward to 7 cents per share from a loss of 9 cents over the past 30 days.

CoStar Group, Inc. provides information, analytics, and online marketplace services to the commercial real estate, hospitality, residential, and related professionals industries.

Strength in its diversified digital service offerings that include a leasing marketplace, a selling marketplace, sales comparable information, decision support, contact management, tenant information, property marketing, and industry news services, holds promise.

Robust traffic on Apartments.com and LoopNet, courtesy of increased online real estate buying due to the pandemic, is expected to boost top-line growth in the days ahead, for this Zacks Rank #3 company.

Investors can also keep a check on AppFolio, Inc. APPF, which is poised to benefit from top-line improvement in the Core Solutions and Value+ Services divisions.

Higher uptake of the company’s electronic payment services is expected to bolster Value+ Services revenues. Growth in the number of property manager customers and property management units augurs well.

Amid the ongoing pandemic, the need to maintain social distancing is driving demand for company’s online leasing services and virtual showings.

Markedly, the company also added new functionalities to its AppFolio Investment Management solution and AppFolio Property Manager PLUS software solution in 2020.

Further, the company is optimistic about its AppFolio Virtual Showings solution, which enables clients to conduct live virtual 3D tours of the housing units and revamp leasing processes amid the COVID-19 crisis.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CoreLogic, Inc. (CLGX) : Free Stock Analysis Report

CoStar Group, Inc. (CSGP) : Free Stock Analysis Report

RealPage, Inc. (RP) : Free Stock Analysis Report

Zillow Group, Inc. (ZG) : Free Stock Analysis Report

AppFolio, Inc. (APPF) : Free Stock Analysis Report

Redfin Corporation (RDFN) : Free Stock Analysis Report

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