Shares of
Redfin
and
Opendoor
Technologies have had an unbelievable run this year. But Gordon Haskett’s Robert Mollins says the party ends here.
The analyst on Wednesday downgraded the two real estate stocks to Underperform, the equivalent of Sell, from Hold.
Mollins raised the price targets for Redfin and Opendoor by about a dollar each to $10 and $3, respectively. Redfin stock fell about 4.5% to $15.23 in recent Wednesday trading, while Opendoor was down 0.3% at $4.38.
Shares of
Redfin
(ticker: RDFN) and
Opendoor
(OPEN) have soared 276% and about 279% this year, respectively, putting the
S&P 500
‘s 19% gain to shame. The rise is partly driven by investors’ hopes that the Federal Reserve will eventually end its aggressive series of interest-rates increases that started last year. A long pause in rate increases or rate cuts could help stabilize or push down mortgage rates and in turn boost home sales. Rates on a 30-year fixed mortgage are now near 7%, higher than 5.5% the same time last year.
Mollins says the stocks’ run is overdone. “We think the housing market recovery is more than priced into the shares. There has been a lot of focus on improving housing dynamics over the past couple of months,” he wrote in a Wednesday note.
Investors’ upbeat view on the housing market has blinded them to the fact that the fundamentals of the companies matter, the analyst added.
In its latest earnings call in May, Redfin projected adjusted Ebitda—earnings before interest taxes, depreciation, and amortization—to be between negative $9 million and positive $1 million for the second quarter that ended in June.
Opendoor, meanwhile, forecast Ebitda losses between $180 million and $200 million for the same period. Quarterly adjusted Ebitda turned negative for Redfin in the 2022 first quarter, and has stayed in the red since then. Opendoor’s adjusted Ebitda has been negative for the past three quarters’ results.
During Opendoor’s May earnings call, CFO Christy Schwartz said Ebitda should improve at the back half of the year as the firm works through its old inventory of homes, which were purchased when prices were higher last year.
Redfin didn’t immediately respond to a request for comment.
Write to Karishma Vanjani at [email protected].
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