Why this broker sees huge upside for REA share price despite housing market downturn

REA shares could be great value despite the housing market downturn according to Goldman Sachs…

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With interest rates rising fast, the housing market has started to wobble and the REA Group Limited (ASX: REA) share price has come under pressure.

So much so, the property listings company’s shares are down 34% since the start of the year.

Is the REA share price weakness a buying opportunity?

Analysts at Goldman Sachs sees a lot of value in the REA share price at the current level.

A recent note reveals that its analysts have a buy rating and $167.00 price target on the realestate.com.au operator’s shares.

Based on the current REA share price of $113.61, this suggests that there is potential upside of 47% for investors over the next 12 months.

Why is Goldman so bullish?

Goldman Sachs remains bullish on REA due to its belief that the company can continue to grow at a solid rate despite the likely downturn in the housing market as rates rise.

In fact, the broker is forecasting 10% annual sales growth between FY 2022 and FY 2024. This will see its revenue go from $927.8 million in FY 2021 to an estimated $1,393.2 million in FY 2024.

At the same time, the broker is expecting positive jaws (sales growing quicker than costs), resulting in strong earnings growth over the same period. This is expected to be underpinned by stronger ad yields.

Goldman is forecasting earnings per share to go from $2.48 in FY 2021 to $3.93 in FY 2024.

The broker commented:

The commitment to >10% yield, is a clear positive in our view, with the willingness to pull the pricing lever particularly constructive (ahead of +8%/+6% contracted in FY22/23), driven by upside to current levels of monetisation in residential advertising (42% revenue share vs. c.75% audience share).

While depth growth is expected to be supported by adoption of the Premiere+ tier and vendor leads (charged on a subscription basis, monetised from FY24). Overall, we believe these commitments illustrate the pricing power of REA, pipeline of value-add products, and its ability to offset any potential macro weakness, and now forecast FY22-24E Sales growth of 10% despite challenging volume listings.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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