With Zillow Group Inc. (NASDAQ:Z) ready to release earnings today and Keurig Green Mountain Inc. (NASDAQ:GMCR) poised to release earnings later this month, analysts weigh in to explain why they remain neutral on both companies.
Zillow Group Inc.
Zillow will announce third quarter earnings today after market close. Ahead of the announcement, Mark Mahaney of RBC Capital maintained a Sector Perform rating with a price target of $31. According to Mahaney, the Street estimates for both Q3 results (revenue consensus at $177 million) and Q4 guidance appear reasonable. However, he feels there might be a modest downside risk in both on account of the sale of Market Leader, a customer relationship management system. In early September, Zillow had announced the sale of Market Leader to Constellation Software for $23 million.
Mahaney’s views are based on certain intra-quarter data points. According U.S. comScore Multi-Platform traffic data, monthly unique visitors to Zillow increased 26% year-on-year in Q3, which is a flat growth rate compared to 26% year-over-year growth in the second quarter. Furthermore, monthly unique visitors to Trulia, a competitor purchased by Zillow earlier this year, declined 5% year-over-year in Q3, deteriorating materially compared to Q2’s 18% growth. Mahaney also points to the August stock split and the sale of Market Leader as reasons for his rating.
Mahaney will focus on certain key points in the upcoming Q3 results. The first and most important is Zillow’s Premier Agent subscriptions, which are the company’s main revenue driver. Premier Agent Subscribers reached 101,000 in Q2, down 2,100 quarter-over-quarter. For Q3, Mahaney assumes that the subscriber base will stay put at 101,000. Also, in Q2 Zillow’s Premier Agent Subscription Revenue grew 120% year-over-year, which he believes was largely due to the addition of Trulia’s Premier Agent business. For Q3, Mahaney forecasts growth to decelerate to 96% year-over-year, leading to Premier Agent Subscription Revenue of $121 million.
The second key focus point is Zillow’s Mortgage Marketplace Revenue. Here too, Mahaney forecasts a modest deceleration from 58% year-over-year growth in Q2, again a benefit from the addition of Trulia’s mortgage business, down to 54% in Q3.
Mahaney has rated Zillow’s stock 9 times. Based on these ratings, his success rate on the stock is 100% with an average return of 30% per Zillow rating. Out of 9 analysts polled by TipRanks who have recently rated Zillow’s stock, 5 have rated it as Buy and 4 have rated it as Hold; none of the analysts have given a Sell rating to the stock. The average consensus price target for the stock is $49.17, an upside of nearly 73% over current levels.
Keurig Green Mountain Inc
Keurig Green Mountain, a specialty coffee and coffeemaker company, is set to announce its Q4 earnings on November 18 after market close. Ahead of the announcement, Scott Van Winkle from Canaccord Genuity weighed in on the stock, reiterating a Hold rating though lowering his price target from $65 to $59.
In his report, Winkle talks about a rocky reception to the company’s transition to the 2.0 Brewer, a new line of brewers set to replace the company’s current K-Cup brewers. In light of this news, Winker said, “We look for color on improved brewer sell-in/sell-through trends that may support stronger holiday brewer volume expectations.”
He expects the core K-Cup business to face pressure from mix and share erosion in the away-from-home channel. Winkle says he can’t recommend buying shares of the company until the risk to K-Cup stabilizes, “which would be greatly helped by a strong holiday brewer sales period.”
For Q4, Winkle says, “we forecast a 25% brewer revenue decline reflecting a 19% decline in volumes to 1.95 million with negative price/mix.” The analyst expects the company to post a conservative guidance for F2016 and below-consensus EPS for Q1. Winkle’s Q1 EPS estimate of $0.70 is 10% below consensus. Winkle has also reduced his F2016 EPS estimate to $3.40 from $3.47 after reducing the margin forecast because of lower average pricing across the brewing portfolio. Lastly, he reduced his revenue forecast for F2016 to $4.61 billion from $4.63 billion.
Out of 26 ratings for GMCR’s stock, analyst Scott Van Winkle has a success rate of 42% with an average return on the stock at 9.4%. Out of 11 analysts polled by TipRanks who have recently rated Keurig Green Mountain, a vast majority share sentiment of Winkle with 9 of them waiting on the sidelines; of the remaining, 1 has assigned a Buy rating to the stock and 1 has assigned a Sell rating. The average consensus price target for the stock is $64.56, an upside of around 25% over current levels.