5 Reasons KeyBanc Is Waiting For A Better Entry Point In Redfin

Redfin Corp RDFN, a provider of residential real estate brokerage services that serves both home buyers and sellers, is considered to be a disruptor in the sector — but that's not enough to make it a buy, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc's Brad Erickson initiated coverage of Redfin's stock with a Sector Weight rating with no assigned price target.

The Thesis

Redfin is gaining "meaningful" market share within the residential real estate market, as it offers a unique approach of using content to drive lead generation, Erickson said in a Monday note. (See Erickson's track record here.) 

The company makes use of an aggressive discount pricing strategy and offers plenty of customer benefits, he said.

Erickson offered five reasons why he shies away from slapping a bullish rating on the stock:

1. Redfin's content lead will likely narrow over time.
2. The company's strategy of targeting the high-end market without high-end agents limits upside potential.
3. A total addressable market analysis suggests the segmented addressable market is closer to $35 billion than the $95 billion overall agent commission pool.
4. Proprietary checks and conversations with sellers and buyers that have knowledge of Redfin were "only mixed."
5. The stock's valuation already implies a "sizable premium" versus the company's traditional brokerage pools.

Redfin's stock would be "fairly valued" in the mid-$20s level based on a 3x EV/2019 revenue multiple and the current stock's price already assumes "investors are already well-appreciating the share gains Redfin is achieving," Erickson said. 

Price Action

Shares of Redfin were up 1.90 percent Tuesday morning and are higher by nearly 20 percent since the company's July IPO. 

Related Links:

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