Shares of Redfin (RDFN -1.96%) fell 6.7% on Tuesday, following bearish analyst commentary.
Piper Sandler analyst Thomas Champion slashed his rating on Redfin's stock from overweight (expected to do well in the future) to underweight (expected to do poorly in the future). He now sees the real estate services company's share price falling roughly 10% to $11. That's down from his previous forecast of $40 per share.
Surging house prices have made buying a home significantly less affordable. At the same time, the Federal Reserve has signaled its intent to raise interest rates to tame inflation. That's driven mortgage rates above 5% -- the highest they've been in more than a decade.
Together, these trends are likely to weigh on demand for real estate services. Champion, in turn, thinks Wall Street's growth projections for Redfin are too high. Though analysts, on average, estimate that the company's real estate services will increase by 9% in 2022 and 16% in 2023, Champion warns that Redfin could struggle with negative growth during this time.
Thus, Champion expects Redfin to generate an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $53.4 million in 2022. Additionally, he fears that Redfin could struggle to integrate its recent acquisitions, including mortgage lender Bay Equity Home Loans and rental site RentPath, which could exacerbate its profitability issues.
Redfin's low-cost brokerage services provide it with a powerful competitive advantage in the $43 trillion U.S. housing market. Yet, although Redfin's market share is growing, if housing sales slow, its own growth could also be stunted.