7 housing market firms poised for big stock gains in 2018
December 12, 2017 7:13 PM
Stock markets are soaring, with the Standard & Poor's 500 index and Dow Jones industrial average up 19% and 24%, respectively, since the beginning of 2017 and repeatedly reaching record highs, breaking them and setting new records throughout the year.
But several publicly traded technology and services providers in the real estate and mortgage industries are expected to grow even faster in 2018 than they did in 2017, according to analysts at investment bank William Blair.
The positive outlook reflects a variety of strategies to enhance top line (revenue) and bottom line (profit) growth, but generally suggests more rapid organic growth for industry vendors, rather than growth driven by mergers and acquisitions activity.
And shareholders are likely to reward this performance boost with higher stock prices, given the importance of growth and visibility on cash flows to investors, the analysts wrote in a recent report.
"We believe some of this is already anticipated in valuations given where market and individual stock multiples are, but we also believe the optics of acceleration and the extrapolation onto 2019 numbers should serve as tailwinds for the stocks in this report," said William Blair's Brandon Dobell and Josh Lamers.
Some companies, like technology developer Ellie Mae, are expected to see accelerated growth driven by easier market conditions, replacement of lost contract revenue and the ramp-up of new customers.
Others, like Remax, should see modest acceleration from growing contributions from agents in territories acquired since late 2016, along with increased traction with theMotto Mortgage franchise bringing in sales and growth in monthly fee revenue.
By comparison, a number of commercial services firms and high-growth enterprises that may see their growth rates stagnate or even slow down in 2018 unless the companies can execute notable merger and acquisition transactions in the next several months.
Here's a look at the seven companies William Blair expects to perform well in 2018. The report is based on analysis of publicly traded firms in the firm's universe of real estate services and technology companies that it covers and does not include every public company in the real estate and mortgage industries. Stock prices and market capitalizations are based on the company's closing price on Dec. 12.
But several publicly traded technology and services providers in the real estate and mortgage industries are expected to grow even faster in 2018 than they did in 2017, according to analysts at investment bank William Blair.
The positive outlook reflects a variety of strategies to enhance top line (revenue) and bottom line (profit) growth, but generally suggests more rapid organic growth for industry vendors, rather than growth driven by mergers and acquisitions activity.
And shareholders are likely to reward this performance boost with higher stock prices, given the importance of growth and visibility on cash flows to investors, the analysts wrote in a recent report.
"We believe some of this is already anticipated in valuations given where market and individual stock multiples are, but we also believe the optics of acceleration and the extrapolation onto 2019 numbers should serve as tailwinds for the stocks in this report," said William Blair's Brandon Dobell and Josh Lamers.
Some companies, like technology developer Ellie Mae, are expected to see accelerated growth driven by easier market conditions, replacement of lost contract revenue and the ramp-up of new customers.
Others, like Remax, should see modest acceleration from growing contributions from agents in territories acquired since late 2016, along with increased traction with the
By comparison, a number of commercial services firms and high-growth enterprises that may see their growth rates stagnate or even slow down in 2018 unless the companies can execute notable merger and acquisition transactions in the next several months.
Here's a look at the seven companies William Blair expects to perform well in 2018. The report is based on analysis of publicly traded firms in the firm's universe of real estate services and technology companies that it covers and does not include every public company in the real estate and mortgage industries. Stock prices and market capitalizations are based on the company's closing price on Dec. 12.
Valerie Caviness/NYSE
Ellie Mae
ELLI (NYSE)
Stock price: $89.67
Market capitalization: $3.15 billion
Driven by fewer annual declines in mortgage volumes from this year's third quarter onward, plus the addition of revenue from its Septemberacquisition of Velocify , Ellie Mae should see the most growth of all companies analyzed by William Blair. Velocify should contribute roughly $30 million in incremental revenue in 2018 compared to $4 to $6 million in this year's fourth quarter.
Stock price: $89.67
Market capitalization: $3.15 billion
Driven by fewer annual declines in mortgage volumes from this year's third quarter onward, plus the addition of revenue from its September
Remax
RMAX (NYSE)
Stock price: $53.10
Market capitalization: $930.86 million
In 2018, Remax should benefit from Motto Mortgage sales and monthly fees and from transactional revenue increases associated with agent recruiting and productivity in independent areas acquired last year and this year. The current market for U.S. existing home sales coupled with the growing concentration of market share for experienced, tech-centric agents should also support Remax agent growth in 2018.
Stock price: $53.10
Market capitalization: $930.86 million
In 2018, Remax should benefit from Motto Mortgage sales and monthly fees and from transactional revenue increases associated with agent recruiting and productivity in independent areas acquired last year and this year. The current market for U.S. existing home sales coupled with the growing concentration of market share for experienced, tech-centric agents should also support Remax agent growth in 2018.
Black Knight
BKI (NYSE)
Stock price: $45.50
Market capitalization: $6.92 billion
The combination of delayed implementations in 2017 and market share gains announced this year should provide for decent revenue growth for Black Knight, which should accelerate faster in 2018 than in 2017. The company should see mortgage servicing package growth of about 6% in 2018, versus 1.5% this year, with MSP being perhaps the most important source of value creation at Black Knight, according to William Blair.
Stock price: $45.50
Market capitalization: $6.92 billion
The combination of delayed implementations in 2017 and market share gains announced this year should provide for decent revenue growth for Black Knight, which should accelerate faster in 2018 than in 2017. The company should see mortgage servicing package growth of about 6% in 2018, versus 1.5% this year, with MSP being perhaps the most important source of value creation at Black Knight, according to William Blair.
Erika Edwards
CoreLogic
CLGX (NYSE)
Stock price: $45.59
Market capitalization: $3.73 billion
Similar to Ellie Mae and Black Knight, CoreLogic's accelerated growth next year can be attributed to smaller declines in refinance volumes, but its Valuations Solutions Group should also benefit from moving forward from volume losses associated with Bank of America, Wells Fargo and new lending customers.
Stock price: $45.59
Market capitalization: $3.73 billion
Similar to Ellie Mae and Black Knight, CoreLogic's accelerated growth next year can be attributed to smaller declines in refinance volumes, but its Valuations Solutions Group should also benefit from moving forward from volume losses associated with Bank of America, Wells Fargo and new lending customers.
Michael Nagle/Bloomberg
Others on the radar
Marcus & Millichap
MMI (NYSE)
Stock price: $31.86
Market capitalization: $1.21 billion
CoStar
CSGP (NASDAQ)
Stock price: $285.94
Market capitalization: $10.40 billion
RealPage
RP (NASDAQ)
Stock price: $44.10
Market capitalization: $3.66 billion
Three companies worth watching for accelerated growth next year are Marcus & Millichap, CoStar Group and RealPage. Marcus & Millichap has continued to both recruit and retain producers, which could suggest better performance in 2018, but relatively tough high-net-worth markets have constrained productivity for most brokers except the long-tenured, according to William Blair.
CoStar may also have an opportunity for growth next year, as the October launch of the CoStar/LoopNet marketplace and listing service should modestly accelerate CoStar's Suite and Information Services segments.
On Nov. 28, RealPage received approval from the Federal Trade Commission for its proposed acquisition of Lease Rent Options, with the deal supposed to close this month. Should this go through, LRO could help grow revenue in 2018.
MMI (NYSE)
Stock price: $31.86
Market capitalization: $1.21 billion
CoStar
CSGP (NASDAQ)
Stock price: $285.94
Market capitalization: $10.40 billion
RealPage
RP (NASDAQ)
Stock price: $44.10
Market capitalization: $3.66 billion
Three companies worth watching for accelerated growth next year are Marcus & Millichap, CoStar Group and RealPage. Marcus & Millichap has continued to both recruit and retain producers, which could suggest better performance in 2018, but relatively tough high-net-worth markets have constrained productivity for most brokers except the long-tenured, according to William Blair.
CoStar may also have an opportunity for growth next year, as the October launch of the CoStar/LoopNet marketplace and listing service should modestly accelerate CoStar's Suite and Information Services segments.
On Nov. 28, RealPage received approval from the Federal Trade Commission for its proposed acquisition of Lease Rent Options, with the deal supposed to close this month. Should this go through, LRO could help grow revenue in 2018.
