U.S. Markets close in 6 hrs 30 mins

KeyBanc: Redfin Is Poised For Steady Share Gains, But At The Cost Of Margin Expansion

Priya Nigam

Although Redfin Corp (NASDAQ: RDFN) should steadily gain market share for the foreseeable future by offering lower-cost services, it may not be possible for the company to “simultaneously expand margins at a level that would justify upside in the shares from current levels,” according to KeyBanc Capital Markets.

The Analyst

Andy Hargreaves initiated coverage of Redfin with an Sector Weight rating and $16 price target. 

The Thesis

Redfin’s site traffic provides a cost advantage in customer acquisition, enabling the company to offer lower-cost services, Hargreaves said in a Thursday initiation note. (See his track record here.) 

Passing along these costs savings adversely impacts Redfin’s profit outlook, the analyst said, adding that the company has not demonstrated an ability to simultaneously gain market share and drive margin expansion.

The market's fragmented nature limits Redfin’s ability to gain enough share to dominate, he said. 

“Redfin lacks the capital and scale to compete in the iBuying market with more well-funded competitors, in our view,” Hargreaves said.

While the analyst said RedfinNow could be a valuable lead generation tool for brokers, he said it's unlikely to become a meaningful contributor to long-term profits for the company.

Price Action

Redfin shares were down 0.53% at $16.76 at the time of publication Friday. 

Related Links:

Wedbush Applauds Redfin's Partnership With Opendoor; Threatens Zillow's Power

Wedbush: Redfin Has Room For Further Upside After 55% Return

Latest Ratings for RDFN

Date Firm Action From To
Jul 2019 Initiates Coverage On Sector Weight
Jul 2019 Upgrades Neutral Positive
Jul 2019 Initiates Coverage On Buy

View More Analyst Ratings for RDFN
View the Latest Analyst Ratings

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.