Wells Fargo starts Zillow and Compass with equal-weight rating

Investing.com -- Wells Fargo initiated coverage of Zillow Group (NASDAQ:ZG) and Compass with Equal Weight ratings, citing a balanced outlook across key business drivers and valuation already reflecting much of the long-term opportunity.

On Zillow, Wells Fargo (NYSE:WFC) set a $62 price target given the stronger momentum in mortgage revenue but challenges in residential growth.

Mortgage attach rates are improving, with Zillow Home Loans showing better service levels and higher local market penetration, leading Wells to forecast mortgage revenue 10-20% ahead of consensus for 2025 and 2026.

However, the firm was less optimistic about Zillow’s residential revenue initiatives, citing mixed agent feedback on its Enhanced Listings and a loss of inorganic growth from the Follow Up Boss acquisition.

Wells’ 2025 and 2026 residential revenue estimates are 1% and 5% below Street expectations.

Competition from Homes.com is viewed as a limited threat, with Wells noting agent checks suggest Homes.com’s monetization strategy is not resonating.

Risks from private listing networks and MLS policy changes are also seen as benign.

For Compass, Wells assigned an $8 price target, pointing to a multi-year runway for agent growth through organic hiring and brokerage acquisitions.

Agent sentiment toward Compass remains positive, and the firm expects high-single-digit annual agent count growth.

Still, Wells flagged limited opportunities to improve commission splits, with industry checks suggesting Compass’ 15% brokerage split is unlikely to fall.

The firm’s Private Exclusive strategy was also seen as a risk, creating friction with MLS organizations without a clear financial upside.

Wells’ 2025 and 2026 estimates for Compass are roughly in line with consensus, and with the stock already trading at a premium to peers, the firm concluded an Equal Weight rating was appropriate.